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The Argo Blockchain (LSE: ARB) share price has become a proxy for the Bitcoin price over the past 12 months. Investors have clamoured to get their hands on the shares as a way to invest in the cryptocurrency, as buying Bitcoin directly can be challenging.
Unfortunately, in my opinion, this rush to buy the stock has distorted the company’s value.
At the time of writing, the corporation has a market capitalisation of £878m. With revenues of £4.3m for the month of February, or just under £52m a year, Argo’s current market value suggests that the business is one of the most richly valued tech stocks globally.
Argo Blockchain share price outlook
Argo is a one-stop-shop for cryptocurrency and decentralised finance (DeFi) investments. Its core business is Bitcoin mining. This is the group’s primary revenue generator.
However, it also owns a stake in Pluto Digital Assets, a crypto venture capital and technology company. Argo owns 25% of the business and recently invested a further £7.3m to maintain its stake following a funding round from the venture capital firm.
Argo raised £27m from shareholders to help fund this investment. The company will use the balance to pursue strategic opportunities in crypto mining.
The company aims to become the world’s largest, most efficient crypto miner. It is making substantial progress towards this goal. In February 2021, Argo reported it mined 129 Bitcoin (or equivalent) in February, up from 93 in January.
As the group continues to invest and build out its Bitcoin mining operation and its investments in other crypto firms, the underlying value of the business should increase. However, at this point, I think the Argo Blockchain share price is far above the fair value of the enterprise.
I think a value of around 10 times sales is a more appropriate multiple for this business. As such, I’d buy the stock if its valuation falls in the near term or if its revenues grow substantially.
Of course, this may mean I miss out on the company’s growth if the price of Bitcoin suddenly takes off.
This is the biggest risk investors face. The Argo Blockchain share price is linked to the Bitcoin price. If the price of the cryptocurrency suddenly falls, the stock could go with it. At the same time, if the value of the crypto asset suddenly jumps, the value of the shares may also increase.
Another risk is overpaying for the stock. If Argo fails to live up to its lofty growth expectations, investor sentiment towards the business may sour. This could leave shareholders who bought at higher levels nursing large losses.
There’s never a single right time to buy a stock. However, I’m going to avoid the Argo Blockchain share price for the time being until the firm’s valuation reaches a more attractive level.
The post The Argo Blockchain share price: this is when I’ll buy the stock appeared first on The Motley Fool UK.
Rupert Hargreaves 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.
Motley Fool UK 2021