In the first week of 2021, the Argo Blockchain (LSE: ARB) share price rocketed over 250%. Naturally, this spurred investor interest and helped push the shares to an all-time high of 282p in mid-February. However, since then the Argo Blockchain share price has tumbled 68%, so it’s currently sitting at 90p. Does this present the perfect opportunity to add this high-growth crypto stock to my portfolio? Let’s take a look.
An undeniable positive for the firm is the speed at which it has been able to grow its mining capacity over the past few years. Back in March 2021, Argo announced it was purchasing a new 320-acre plot of Texan land upon which it has started construction of a new 200-megawatt mining facility. This is expected to increase mining capacity tenfold.
In addition to this, the company announced in September 2021 that it was in the process of purchasing 20,000 new Bitcoin mining machines. This tech upgrade is expected to double the current mining capacity and will be delivered and installed at the future Texas facility between Q2 and Q3 2022.
As my fellow Fool Edward Sheldon pointed out, the current Argo Blockchain share price actually seems quite cheap considering its growth rates and profitability. Analysts estimating a 10.8p earnings per share for 2021. Using this metric, Argo currently trades off of a trailing price-to-earnings (P/E) ratio of around nine. This valuation is enticing to me.
That said, a concern I have always had with Argo is its business plan. The firm’s revenues are directly reliant on the price of Bitcoin. That means that regardless of the huge extensions to mining capacity, if the Bitcoin price slumps, then revenues won’t increase. If this is the case, then Argo could find itself seriously strapped for cash further down the line. This could lead to poor results and a drop in the Argo Blockchain share price in the future.
What’s more, there is no niche to the firm’s business plan. Essentially, Argo is a massively scaled-up set of mining computers. Anyone with enough time and capital could set up a competing business and eat aware market share.
Short-seller Boatman Capital recently took a swing at Argo. It suggested that the company vastly overpaid for its Texas land plot, indicating a correct valuation of $168,000 (as opposed to the $17.5m Argo paid for it). Such issues never look good to prospective investors.
I do like the look of the current Argo Blockchain share price, especially considering its impressive expansion. However, I feel more comfortable waiting to see how this expansion translates into results over the next few months. What’s more, the broader crypto market seems to be in a bad spot at the moment, hence Argo’s profits are likely to take a hit. Therefore, while I’ll be placing Argo Blockchain on my watchlist, I won’t be adding the shares to my portfolio today.
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.