In the early months of 2021, Argo Blockchain (LSE: ARB) proved itself as one of the hottest stocks on the market. Climbing over 400% in the first three months of 2021, the crypto mining company’s shares have delivered a whopping 132% year-to-date return for investors.
However, the Argo Blockchain share price has been sliding in recent months, falling 22% in the past 30 days. There are positives and negatives to consider before adding this stock to my portfolio. I’m going to take a closer look at both cases before considering buying this dip.
An undeniable positive for the firm has been its continued strong growth rates over the past year. For example, in November, Bitcoin mining capacity rose 15%, with revenues reaching £8.3m. Back in March, the firm announced the acquisition of a 320-acre plot of land in Texas on which it will be constructing a 200-megawatt mining facility over the next year. This facility is expected to deliver a tenfold increase compared to current mining power.
The firm operates with extremely high profit margins of 66% (as of September 2021), which have also risen substantially throughout the past year. Announcing record Q3 results in early November, the firm achieved £19.3m in revenues. Due to the high margins, £12.9m of this was profit. This is very encouraging to potential investors like myself who are considering purchasing the share price dip.
Crypto price volatility
One risk for the Argo Blockchain share price is the fact that revenues are so linked to the cryptocurrency market. As we all know, the crypto market has seen exponential growth in recent years, however, it’s also extensively volatile. We often see double-digit swings in the price of Bitcoin, Argo’s most heavily mined coin.
The wider crypto market also seems to be hitting some turbulence at the moment, with Bitcoin’s share price falling 21% in the last 30 days. Even if Argo’s impressive growth continues, if the price of Bitcoin falls enough, the firm’s revenues will fall. For example, say Bitcoin’s price halves in the next month – a phenomenon we saw earlier this year – Argo would have to mine double its previous month’s capacity to make the same revenues. This business plan seems very risky to me.
In addition to this, short-seller Boatman Capital has recently attacked Argo for massively overpaying for its Texas land plot. Argo paid $17.5m, but Boatman is arguing a more appropriate valuation of the land would have been $168,00. It has also released a report questioning the firm’s corporate governance. If such allegations are true, they could turn investors against Argo Blockchain shares.
All things considered, I won’t be buying the Argo Blockchain share price dip right now. Although the firm has demonstrated great growth levels over the past year, the fact that it’s so closely tied to the crypto market has been a red flag for me since day one. In addition to this, the recent allegations worry me and if they prove correct, I think we could see the Argo Blockchain share price slide further.
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The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.