A year ago, Argo Blockchain (LSE: ARB) was riding high. February 2021 saw the shares hit their all-time high price. Since then, the Argo Blockchain share price has crumbled. The shares are down over 75% in just 12 months.
What happened? Is the crash a buying opportunity for my portfolio?
Argo and profitability concerns
Some of the fall is due to factors outside Argo’s control – but not all of it.
The part that is relates to the price of cryptocurrencies. Argo mines crypto such as Bitcoin. It also holds a stock of crypto it has mined – at the end of January, the company owned 2,748 Bitcoin and equivalents. At the moment, that has a market value of around £75m. As crypto pricing moves up and down, it can have an impact on the Argo Blockchain share price.
But even after the share price collapse, Argo’s market capitalisation of £299m is around four times the value of its crypto holdings. That reflects the value investors are placing on other parts of its business, such as its mining expertise, asset base, data centre leasing business and expansion strategy. These are things that Argo can at least partially control, unlike crypto pricing. The share price fall partly reflect concerns about the company’s costly expansion plans, especially a big new facility it is building in Texas.
A bull case for Argo
Increasing restrictions in various countries mean the number of places in which crypto miners can operate is being reduced. If Argo is able to navigate these changes smoothly with its North American focus, that could strengthen its competitive advantage.
The company does not just stockpile crypto it mines – it has been selling some from time to time. That cashflow means that over time, Argo’s share price may be less affected by swings in crypto pricing. The company’s data centre business has value regardless of what happens to crypto pricing, in my view. Data centre demand keeps growing strongly in many markets and Argo has been building a portfolio of properties that could help it benefit from this.
Risks to the Argo Blockchain share price
Although I see reasons to be bullish, clearly there are significant risks to the Argo share price. Crypto pricing is volatile and unpredictable. It could end up going to zero. Due to its mining activity, any fall in crypto pricing can hurt the Argo share price.
The Texan expansion plan is another risk to the company’s future profitability. It is building and kitting out a huge data centre from scratch. Although the final costs depend on what equipment the company decides to install, the expansion is set to be very costly. Argo already issued expensive debt partly to help fund this expansion. The buildout could further harm profitability in coming years. Then again, the extra capacity the centre will give Argo could turn out to be very profitable.
My next move
Despite the share price fall, I continue to have confidence in Argo’s strategy and its management.
For now, I am holding my shares and keeping an eye on how the Texan buildout progresses. But with political risks to crypto growing almost weekly, I do not plan to add any more shares to my position for now.