At the start of 2021, Argo Blockchain (LSE: ARB) shares saw an astronomical rise. In fact, in the first three months of 2021, they rose over 500%! However, since reaching their peak of 282p in February 2021, they have fallen over 73%. The primary reason behind this has been a bearish crypto market. So, at just 65p, are Argo Blockchain shares a bargain for my portfolio? Let’s take a look.
Argo Blockchain: the lowdown
Argo is a cryptocurrency mining company. This means it uses high-power computers to solve complex cryptographic problems and in doing so is rewarded in cryptocurrency. The crypto is then either held or sold for profit.
One of the main reasons I think Argo Blockchain shares are falling is due to disappointing business results. In December 2021 (when the shares were booming) the company mined 214 Bitcoin or equivalents. However, in March it mined just 135. This fall has been attributed to rising hash rates (the cost of powering its computers) and also poor weather conditions to power its facilities. Unless mining capacity can be remedied, I don’t see the shares rising again any time soon.
Another reason why I think Argo Blockchain shares have fallen is due to rising global inflation. Last month in the UK, annual inflation reached a 30-year high of over 7%. The Bank of England has raised interest rates to combat this. When rates rise, investors tend to turn away from riskier assets like growth stocks. This factor seems to have turned them sour on Argo Blockchain shares.
Positives for the shares
One positive for Argo is that its new Helios mining facility is set for completion in Q2. The 200MW facility is set to turbocharge mining power, which should be a huge positive for the firm. The added power may help combat the bearish crypto markets and keep investors’ appetites up.
It’s also hard to ignore the firm’s astronomical year-on-year growth. Since FY18, its revenue and EBITDA have grown at a stunning 351% compound annual growth rate (CAGR). While past returns are no indication of future returns, this type of growth is rarely seen, and it does excite me.
My concerns
While growth seems good, I cannot see past the risks. In addition to this, I do not have confidence in the firm’s underlying business plan. Being solely reliant on crypto, Argo’s revenues are completely tied to the price of Bitcoin (and the other cryptos it mines). For example, if it doubled its month-on-month mining capacity, but the price of Bitcoin halved, it would generate no additional revenue. Because of this, I struggle to see how the firm will consistently grow.
Argo Blockchain shares have already taken a beating due to poor results and rising rates. For me, the business plan is not a viable investment option. Therefore, I will not be adding Argo Blockchain shares to my portfolio today.