It has been a breath-taking few days for the valuation of Argo Blockchain (LSE: ARB). At the time of writing this on Thursday morning, the Argo Blockchain share price has soared by 66% in just five days.
Over the longer term, however, the picture also looks dramatic – but in a less rosy way. Even after the recent sharp increase in value, the shares are still 82% lower than they were a year ago.
So, why has the share price soared recently?
The answer is not really clear, in my opinion. It is true that some cryptocurrencies including Bitcoin have increased in value recently. Bitcoin, for example, has risen 8% over the past five days. As a core part of Argo’s business strategy and asset base, an increase in Bitcoin valuation ought to help boost its share price. But an 8% increase in Bitcoin values hardly explains why Argo shares have leapt by two thirds.
In reality, there has not been any specific news from Argo in recent days that I think helps explain the jump. The last substantive news from the firm was released over a fortnight ago. That was simply the company’s regular monthly update. The mining profit edged up from the previous month but that increase of 6% was not very notable, especially as it mostly just reflected a change in the dollar to pound exchange rate compared to the prior month.
It could be that, with the Argo price far below its previous levels and trading in pennies, bargain hunters have pushed up the share price in recent days. For now at least, I do not see any other clear reason that explains the strong upwards movement.
What comes next for the Argo Blockchain share price
If that is the case, it is unclear whether such positive momentum can continue. Recent gains in the Argo Blockchain share price could be reversed.
As an Argo shareholder and long-term investor, simply hoping that shifts in investor momentum push the price up in the short term is not the sort of strategy that can help me sleep comfortably at night.
Instead, what I would hope for is a set of concrete reasons to believe the investment case is becoming more robust, which could support an increased share price.
That might happen. For example, if crypto prices keep moving up, that could help both the value of Argo’s crypto assets today and the economics of its mining activities in future.
But the company has been sailing through choppy waters lately. It announced this month that it is selling thousands of unused mining machines and raising cash to boost its liquidity. That suggests that there is a risk existing shareholders could be further diluted as the company seeks to strengthen its balance sheet. It also casts doubt over the viability of the firm’s business model.
That could be bad for the share price. I am not buying any more shares for now. Instead, I am paying attention to see whether Argo releases any news that helps increase my confidence in its long-term investment case. If that does not happen in coming months, I will consider selling my shares.
The content in this article is provided for information purposes only. It is not intended to be, neither does is 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.
C Ruane has positions in Argo Blockchain. 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 2022