Over the past year, the valuation of Argo Blockchain (LSE: ARB) has fallen by 61%. That means I can now get a lot more Argo Blockchain shares than I could before for the same amount of money.
But are they worth buying?
Why the shares are falling
As a cryptocurrency miner, Argo has suffered along with the value of crypto. Bitcoin has lost 46% of its value in the past year. So it is understandable that Argo shares have taken a hit.
Still, the fall in Argo Blockchain shares is bigger than that of Bitcoin. Why is that so?
I think it partly reflects a shift in sentiment towards the company. As crypto has tumbled, Argo’s big investments in new mining capacity, like its massive Texan data centre, threaten to look more like a white elephant than an inspired piece of strategic foresight. But that could change if bitcoin prices move up enough, in my opinion.
Meanwhile, the company continues to mine successfully. Last month, for example, what the firm terms its mining profit came in at almost £1.5m. But that has not been enough to stop Argo Blockchain shares from sliding.
Reasons for optimism
To a significant extent, the fortunes of Argo are tied to what happens to crypto valuations. High crypto prices do not necessarily mean Argo will succeed. But without strong prices, a business model that includes Argo acting as a crypto miner is in trouble.
Nobody knows what will happen to crypto prices in future, which is a big risk for Argo Blockchain shares. Despite already falling a long way, they could keep going down if crypto prices tumble.
But that cuts the other way too. If crypto prices recover, Argo’s proven mining expertise and infrastructure could help boost its profitability. On top of that, I think the company’s network of data centres may be useful even if crypto prices remain deflated. Demand for data storage is set to keep growing in coming years. That is something Argo might be able to capitalise on to develop income streams outside of crypto mining.
I also think the management deserves credit for the way it has grown the business. Revenue last year almost quadrupled compared to the prior 12 months. The company made a £30m profit, meaning it currently trades on price-to-earnings ratio of just 8. Falling crypto prices could hurt this year’s performance badly and that could mean much lower earnings. But I think it is positive that Argo has shown it can make a healthy profit in the right conditions.
My next move
I have a small holding of Argo Blockchain shares in my portfolio.
For now, I continue to hold them and am hopeful that the business performance will improve. But falling crypto prices have highlighted just one of the risks here and I do not plan to buy more, despite their price falling.