Over the past month, Argo Blockchain (LSE:ARB) shares are up an impressive 35%. This coincides with the resumption of the rally in Bitcoin and other cryptocurrencies. After falling below $30,000 on July 20, Bitcoin has bounced to over $47,000 as I write. Naturally, a cryptocurrency mining company like Argo Blockchain will see a correlation in this regard. So does the outlook mean I should be buying the shares now?
The correlation with Bitcoin
Although I’m not an expert on cryptocurrency, similar trends carry over from the stock market. A lot of this links to behavioural finance. One of the most prevalent and well-known behaviours is the fear of missing out (FOMO). Investors hate to miss out on a potentially profitable idea, be it a surging meme stock or a cryptocurrency.
So when I look at the chart of Bitcoin and see that it was trading above $60,000 just four months ago, I can see why the current rally could continue. A lot of people who missed buying the first time around could be keen to invest now. Regardless of any fundamental analysis, this drive alone could push Bitcoin prices higher.
With the natural correlation to Argo Blockchain shares, this could act as a good support for the stock as well. The stock might even outperform the different coins because Argo Blockchain is a listed stock. Some investors may feel safer getting exposure to cryptocurrency via a stock instead of having to buy and hold the coins in a virtual wallet.
Argo Blockchain shares supported by growth
Aside from the rally in Bitcoin, Argo Blockchain shares could get support from the actual activity of the company. Recent half-year results offered encouraging signs for the future. Revenue grew by 180% to £31.1m from the same period last year. This helped pre-tax profit to swell to £10.7m, significantly higher than the £0.5m from H1 2020.
Interestingly, CEO Peter Wall commented in an interview last week regarding the company that “it’s not a race, it’s not a sprint to see how much capacity you can get online in the mining game from our perspective. It’s a long-term marathon”. I do agree with him here, mostly because I think cryptocurrency could be key if we fast-forward several years.
Yet just because I think Argo Blockchain is moving in the right direction doesn’t mean I’ll buy shares. This is because the share price trades with an expensive P/E ratio of 57. It also has a market cap of almost £500m, rather rich considering the current revenue and profit numbers.Â
I do understand the fact that Argo Blockchain shares are pricing in the further growth projected. But considering the shares were trading at 6p just one year ago, I see a risk that the market is getting ahead of itself. Even if I add in a further rally in Bitcoin, what fundamental value or long-term price can I put on it? $100,000? $1m? Nobody knows.
Therefore, I won’t be investing in Argo Blockchain with the share price at current levels, despite my praise and respect for the company growth.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.