After tumbling 75%, is the Argo Blockchain share price a bargain?


Risk-reward ratio/risk management concept

Risk-reward ratio/risk management concept

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

Could this present a bargain buying opportunity for my portfolio?

Reasons for the fall

The company is highly exposed to cryptocurrencies such as Bitcoin. Mine cryptocurrencies for yourself. It also operates data centers that are optimized for tenants mining cryptocurrencies. Therefore, a drop in the value of cryptocurrencies is often reflected in the price of Argo Blockchain shares.

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

Investors may be reacting to what they perceive as overvaluation in Argo. Last year its shares soared 196%. But the share price drop may also reflect investors’ concerns about the prospects for the business. A massive new data center it is building in the US adds substantial costs for the company, at a time when the future of cryptocurrencies is less clear than ever.

Crypto regulation

That lack of clarity stems from several countries banning crypto mining while others seek to regulate it.

The United States has been preparing a strategy to deal with cryptocurrencies, which is due at any moment. Anticipation of what it might hold has helped boost Argo’s share price this week. If the US decides not to ban cryptocurrencies outright but to regulate them, that could help establish a clearer framework for mining and trading them. For Argo, I think that could be a positive, especially as the US location of its large new facility could provide a competitive advantage over miners in other countries.

business performance

What concerns me a bit more about Argo at the moment is its trading performance. Its February mining results were notably weaker than the previous month. He attributed this to an increase in network difficulty, which I believe could continue to be the case in the coming months, and cold weather affecting some of his facilities. But those are in Canada and the northern US, so I see that as an issue that could come back every year for the company.

my move now

I continue to see potential in the Argo business. Its data centers mean that it could create value in addition to its own crypto mining operations. His strategy of sometimes selling part of his own cryptocurrency also means he can generate cash. Last month, he appears to have sold 163 Bitcoin or its equivalent.

But the risks remain substantial. It is not only those regulatory and price risks that affect all crypto miners. Argo is also taking a risk with the huge expense of its new US facility. Depending on the price of cryptocurrencies, it could turn out to be a very expensive white elephant. For now I keep my Argo position without increasing it. I am awaiting further news on the completion and operation of the US facility. Given the risks involved, I would not call the Argo Blockchain stock price a bargain for my portfolio.

The charge After Plunging 75%, Is Argo Blockchain Stock Price a Bargain? first appeared in The Motley Fool United Kingdom.

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Christopher Ruane owns shares in the Argo Blockchain. Motley Fool UK has no position in any of the stocks mentioned. Opinions expressed about companies mentioned in this article are those of the author and may therefore differ from official recommendations we make on our subscription services such as Share Advisor, Hidden Winners and Pro. We here at The Motley Fool believe that consider a wide range of ideas we best 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 various risks, including the total loss of the money invested. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Motley Fool UK 2022