For a while, Argo Blockchain (LSE: ABR) shares were on fire. Even now, they’re still up 860% in a year, despite losing 63% of their value since February, at the time of writing today. The question I face now as an investor considering the company for my portfolio, is whether the Argo Blockchain share price is likely to recover – or could the price plunge be permanent?
Why the shares fell
After its strong performance at the start of 2021, I think some investors have taken their profits off the table by selling shares. That has taken away some support for the Argo Blockchain share price.
But the key driver for the recent fall has probably been a declining Bitcoin price. Given its crypto mining operations and holdings, Argo is seen by some investors as a proxy for the key cryptocurrency. Its price has tumbled in recent weeks. I think there is more to Argo than just its Bitcoin mining potential, but many investors see Argo as close to a pure play on Bitcoin.
Positive signs at Argo
One thing I think the share price fall obscures is the dramatic improvement in Argo’s business performance over the past year.
Consider last month as an example. Argo reported a monthly mining profit of £7.1m. The mining margin was 86%, compared to approximately 57% last November. Last month, it mined 185 Bitcoins or their equivalent. That is a big improvement over the 115 mined in the same month last year.
Meanwhile, the company has been raising funds to gear up for expansion. Last month it issued $40m of debt, part of which it plans to use on building and kitting out a new mining facility in Texas.
While Argo’s improving business performance is encouraging, I continue to see risks in the stock. The volatile nature of cryptocurrency pricing continues to impact the share price. That could drive it up but it could also push it down, depending on which direction crypto prices move.
While the debt could help the company grow, it also adds risk. Indeed, the high interest rate of 8.75% suggests that many debt investors see risks in the company. Servicing debt in future will eat into company profits. I think that lowers the chance of a dividend in coming years.
My move on the Argo Blockchain share price
Argo Blockchain’s chief executive spent just over £100,000 buying shares on the open market last month. He bought US depositary receipts of the UK shares at a point when they were changing hands at around £1.32. Just a month later, I can now pick Argo shares up at over a 25% discount to what the chief executive paid. Should I?
I do think the business is moving in a good direction. I like the fact that the chief executive has backed up his moves with his own money. But I continue to see Argo as closer to speculation than investment. It has taken steps to decouple from crypto pricing, for example by selling some of its holdings for cash. But the link remains fairly strong. That means that even strong business performance might not help the Argo Blockchain share price, if crypto pricing falls. So, for now, I will remain on the sidelines and not add the company to my portfolio.
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Christopher Ruane 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.
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.