Shares in UK-listed Bitcoin miner Argo Blockchain (LSE: ARB) have experienced a significant decline recently. Back in February 2021, the stock was trading above 300p. Today however, the share price is under 100p.
Has this share price fall created a buying opportunity for me as we start 2022? Let’s take a look.
Argo Blockchain shares: the bull case
There are certainly things to like about Argo Blockchain from an investment point of view. For starters, growth has been very strong in recent years. For 2021, analysts expect revenue of £81.1m. That’s a huge increase from the figure of £8.6m posted for 2019. Looking ahead, analysts expect revenue of £120m for 2022.
Secondly, unlike many other hyper-growth stocks, Argo is already profitable. For 2021, analysts expect the group to generate a net profit of £43.2m. That would represent a 25-fold increase on net profit in 2020.
Third, the stock’s valuation is not high. Currently, analysts expect Argo to post earnings per share of 10.8p for 2021. This means that, at the current share price, the trailing price-to-earnings (P/E) ratio is only about 9.1. That seems very low relative to the growth rate here.
The bear case
Having said all that, my focus is on high-quality growth stocks, and when I look at the quality of the business here, I have a few concerns.
The first is that Argo ultimately has very little control over its revenues and profits. That’s because these are dependent on the price of Bitcoin. If Bitcoin falls in value, as it has recently, Argo’s financial performance is likely to suffer. Given that Bitcoin can be very volatile at times, Argo is very much a speculative investment, in my view.
Another concern is in relation to the company’s competitive advantage. Is there anything to stop another company launching a similar Bitcoin mining business and capturing market share? There doesn’t appear to be.
It’s worth pointing out that this lack of quality is reflected in the valuation. Typically, high-quality growth stocks tend to have higher valuations. That’s because valuation is a function of supply and demand. If a stock is high quality, lots of big investors want to own it, which pushes its valuation up. The low P/E ratio here is a bit of a red flag, in my view.
The lack of quality is also reflected in the investor base. If this was a high-quality stock, I’d expect to see several institutional investors with large holdings. However, looking at ownership of the stock, there’s only one institutional investor with a holding greater than 1%, and that’s a rather obscure ETF provider.
Finally, it’s worth pointing out that Argo has been attracting some interest from short sellers (investors who expect the share price to go down) recently. Last month, for example, it was targeted by Boatman Capital. This is another red flag, to my mind.
Should I buy Argo Blockchain stock now?
Weighing everything up, I’m happy to leave Argo Blockchain shares on my watchlist for now. All things considered, I think there are much better growth stocks to buy for 2022.