As a shareholder in Argo Blockchain (LSE: ARB), I am certainly not sitting pretty! The share price has crashed, losing almost half its value in the past week alone. It now stands 84% below its level a year ago.
Despite that, there is still room for it to go lower. So, should I sell my holding now in case the shares end up going to zero?
What’s behind the Argo Blockchain share price crash?
A share typically does not fall over 80% in a year without a reason. Argo Blockchain is no exception.
The Argo Blockchain share price had already been struggling for many months. The company mines cryptocurrencies such as Bitcoin. So the falling price in Bitcoin hurt the value of what the company was mining, as well as investor perceptions of the firm’s long-term value.
However, what had already been a sizeable decline became a crash last week after the company issued an announcement with what I thought was an alarming title: “Strategic Actions to Strengthen the Company’s Balance Sheet”.
On its own, having a strong balance sheet is good business practice in my view. As an objective, I would applaud it. The reason I winced when I saw the announcement title was because of the implication that Argo Blockchain needed to shore up its finances pressingly.
Liquidity moves and equipment sales
Argo proclaimed itself “pleased to announce” several steps it is taking to boost liquidity, which struck me as unduly upbeat for what amounts at least in part to a fire sale.
Having spent most of its life as a listed company trumpeting its expansion plans, the company has agreed to sell 3,400 mining machines for £6m. They are described as being “new in box”. That reeks of financial desperation to me. It also suggests that the company’s aggressive expansion plans have significantly outstripped its ability to execute.
The company also plans to raise £24m, before charges, by issuing new shares. This will dilute existing shareholders.
On the plus side, both moves could help the company raise cash. If it has enough cash to survive, it may be able to further prove its business model. For example, if crypto prices increase, profits could increase. Mining continues and last month, the company mined 215 Bitcoin or Bitcoin equivalents.
But I think the fundraise and equipment sale cut to the core of management credibility. It has had to shore up liquidity by selling equipment still in its boxes that should have been used to deliver Argo Blockchain’s growth plan. High electricity prices mean that its massive US data centre is operating less than had been hoped.
I think Argo could go to zero
Between high electricity prices challenging the business model, a liquidity squeeze, and growing doubts about management competence, I think further rights issues or simply an increasingly uneconomic business could end up pushing the Argo Blockchain share price close to zero – or even zero.
I am therefore considering selling my stake, depending on how the business performs in coming months.