Back in February, shares in Argo Blockchain (LSE: ARB) were changing hands at over 280p. The Argo Blockchain share price is less than half of that now. Yet it still shows growth in excess of 2,600% over the last year.
I’ve been considering whether the Argo Blockchain share price could reach its February highs again and looking at two reasons it might (plus a couple of less positive factors).
Bull factor 1: crypto prices
A key driver for the Argo share price has been cryptocurrency prices. Argo, as a Bitcoin owner, has seen its share price gyrate alongside the cryptocurrency. With key influencer Elon Musk sending out seemingly conflicting messages on crypto lately, Bitcoin prices have moved around sharply.
That’s a continuing risk for Argo. If crypto falls, its share price could follow. But the flipside also holds. If Bitcoin prices recover, the Argo Blockchain share price could recover too — maybe even back to February prices, or beyond.
Bull factor 2: strong management
Argo’s current management is ambitious about growing the company. That has been shown this month, with two Canadian properties added to its portfolio.Â
A plan to build a new data centre in Texas also shows management foresight. The lean environmental footprint could help reduce costs. It could also help insulate the company from criticism about the heavy energy consumption of crypto mining, although I think that critique extends far beyond any one miner.
Unusually, management provides shareholders with straightforward monthly updates. This openness has helped highlight the speed and thoughtfulness of the current executive team. That could help boost the share price in future.
Bear factor 1: valuation concerns
Of course, there are downsides too. What are investor in Argo paying for? The company has a market cap of £487m. But at the end of April, it only held 936 Bitcoin or equivalent. At today’s valuation, that’s worth under £30m. What accounts for the rest of the market cap?
The balance sheet doesn’t explain the gap. The company ended last year with total debt of £7.4m. The data centre business and management may merit some premium. But can they justify a valuation close to half a billion pounds? I don’t see the financial logic in such a price so I worry that the share price could be vulnerable.
Bear factor 2: speculation
A share price that increased over 2,600% in a year sounds incredible. But such an astounding performance can reflect a speculative frenzy. It may well not just be about investors valuing a company on its underlying performance.
I do think the business is performing well. Its triple-digit revenue growth impresses me. But I think the Argo Blockchain share price has been driven up partly by speculation.
That can work both ways – while it could push the share price up to its former highs again, it could also bring it crashing down. The strong business performance may not offer enough support against determined sellers.
As an investor, I prefer to stay away from shares that are subject to heavy speculation. Instead I would rather focus on shares where I see strong business prospects and an attractive entry level. So while I do think the Argo Blockchain share price could recover, I also reckon it could crash further, even after the recent fall. I won’t be touching it.