After Falling 75%, Is Argo Blockchain Stock Price a Bargain?

After Falling 75%, Is Argo Blockchain Stock Price a Bargain?

Risk-reward ratio / risk management concept

Holders of Argo Blockchain (LSE: ARB) Stocks have moved a lot in recent days. But over the past year, the overall movement has been mainly in one direction: downwards. Argo Blockchain stock price has lost 75% of its value in just 12 months.

Could this represent a buying opportunity for my portfolio?

The reasons for the fall

The company is heavily exposed to cryptocurrencies such as Bitcoin. It mines the crypto itself. It also operates tenant-optimized data centers leveraging crypto. Thus, a decline in the value of the crypto often reflects on the Argo Blockchain share price.

But I don’t think that’s the whole story. After all, the company’s 75% decline in value over the past year is far greater than Bitcoin’s 30% decline in dollar value over the same period.

Investors may react to what they perceive as an overvaluation at Argo. Last year, its shares soared 196%. But the fall in the share price may also reflect investor concerns about the company’s prospects. A massive new data center it is building in the US is adding substantial costs to the company, at a time when the future of crypto is less clear than ever.

Crypto regulation

This lack of clarity stems from a number of countries banning crypto mining, while others seek to regulate it.

The United States has prepared a strategy to deal with the cryptocurrency, which is expected any day. Anticipation of what it might contain has helped push Argo’s stock price higher this week. If the US decides not to ban crypto outright but rather regulate it, it could help set a clearer framework for its mining and trading. For Argo, I think this could be positive, not least because the US location of its large new facility could provide a competitive advantage over miners from other countries.

Company Performance

What worries me a bit more about Argo right now is its trading performance. Its February mining results were noticeably weaker than the previous month. He pinned this on an increase in the difficulty of the network – which I think could remain the case in the coming months – and cold weather affecting some of his installations. But those are in Canada and the northern United States, so I see that as an issue that could come up every year for the company.

My move now

I continue to see potential in the Argo business. Its data centers mean it could create value on top of its own crypto-mining operations. Its strategy of sometimes selling some of its own cryptos also means that it can generate cash. Last month it seems to have sold 163 Bitcoin or equivalent.

But the risks remain significant. It’s not just price and regulatory risk that affects all crypto miners. Argo is also taking a risk with the significant expenditures for its new US plant. Depending on crypto prices, this could turn out to be a very expensive white elephant. For now, I maintain my Argo position without increasing it. I await future news on the completion and operation of the US facility. Considering the risks involved, I wouldn’t call the Argo Blockchain stock price a boon to my portfolio.

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Christopher Ruane owns shares in Argo Blockchain. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.

The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the complete loss of the money invested. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making any investment decision.

Motley Fool United Kingdom 2022