The crypto mining centre operator, Argo Blockchain (LSE: ARB), has had a wild ride on the stock market this year. At the time of writing today, it’s up 700% over the past 12 months. But it has seen a lot of downward movement in the past few months. Today it’s been testing the £1 level. At some points during the day’s trading, the Argo Blockchain share price was in the pence not pounds. So, could now be the time for me to add such a penny share to my portfolio?
Why Argo Blockchain became a penny share
First it’s helpful to clarify that just because a share dips below a pound, it doesn’t mean it will always be a penny share. Share prices are dynamic, so Argo could move and out of penny share status repeatedly in a short period of time.
It’s still a long fall for the company, however, given that the Argo Blockchain share price touched £3.39 earlier this year. I actually think the Argo business has shown significant signs of improvement over the course of 2021. Last month the chief executive spent money buying shares in the company. So why has the price continued to slide to penny share territory?
I think the explanation lies in recent falls in crypto pricing. Many investors perceive Argo as a proxy for the worth of leading cryptocurrencies such as Bitcoin. So as they have slide over the past few weeks, so has the Argo Blockchain share price.
Possible buying opportunity
The move into penny share status could present a buying opportunity for my portfolio if I felt confident about the future prospects for Argo.
In fact I do see increasing reasons for optimism on the company’s performance. It is scaling up its business considerably, both through acquisition and building a massive new site of its own in Texas. It has also evolved its strategy this year, opportunistically selling some of its crypto instead of hoarding it. That could help it convert paper profits into substantial free cash flow over time.
Its market capitalisation is around £460m, but I expect profits to boom. Last year it reported a £1.4m post-tax profit, which looks tiny relative to the market cap. For the first three-quarters of this year, its net income is approximately £20m. Net income is not quite the same as post-tax profit, but I think the booming net income suggests post-tax profits could also rise strongly. On that basis, the current Argo Blockchain share price looks more attractive to me for my portfolio than it did earlier this year.
My next move
But although I see potential in Argo, I won’t be making a move on this penny share just yet.
I continue to see risks in the shares, which I think the dramatic price movement this year has illustrated. Speculative activity continues to affect the share price. Swings in crypto pricing can also affect the Argo Blockchain share price dramatically. The company has borrowed money to fund its expansion. That adds to the balance sheet risk and interest payments could eat into profits. I’ll keep watching this penny share from the sidelines.
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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.