Argo Blockchain (LSE: ARB) shares have had a rough 2022 so far. Currently sitting at 63p, the shares are down almost 30% year-to-date and 76% over the past 12 months. The primary driver behind this is the bearish crypto market, which Argo is almost wholly dependent on to generate revenues. However, having fallen so much in recent months, could now be a good time for me to buy Argo Blockchain shares for my portfolio? Or should I stay away from the Bitcoin mining giant? Let’s take a look.
Impressive growth
Argo operates with a simple business plan: it mines Bitcoin and other cryptocurrencies. The way that it does this is by validating and recording transactions on the blockchain and receiving crypto in the process.
In the most recent investor presentation released in February, Argo informed traders it held 2,748 Bitcoin and Bitcoin Equivalents. The firm is currently operating with 83% mining margins – the industry-leading standard – which helped it post record setting Q3 2021 revenues of £19.3m. From 2018, Argo’s revenue has grown at an eye-watering 351% compound annual growth rate. These results affirm the explosive high growth of the firm, which does fill me with confidence for the future.
Another positive for Argo Blockchain shares that I took away from the investor’s presentation was the forward-looking plans the firm has:
Firstly, its new Texas mining facility is set for completion by October 2022. The 200MW facility is expected to increase total mining power by over 130%. If the price of Bitcoin can rise, or remain stable, this expansion is likely to significantly boost revenues.
Secondly, the firm has announced it building its presence in Quebec, due to the low cost, clean hydroelectricity. Wind power will also predominantly power the Texas facility. This will help the firm maintain 100% carbon neutrality.
Bitcoin dependency
Although Argo has exhibited some impressive growth, in my opinion, its business plan is too heavily reliant on the price of Bitcoin. The Texas facility is expected to more than double the mining capacity of the firm. However, since November 2021, the price of Bitcoin has fallen by over 40%. Similarly, Argo Blockchain shares have fallen over 50% during the same period. Therefore, unless Bitcoin recovers, the new facility isn’t guaranteed to produce significant revenues.
It is, however, guaranteed to increase debts. The high debt taken on by Argo could harm profitability in the coming years. What’s more, with interest rates rising across the globe, these debts could become increasingly costly for the firm, further reducing margins and pressuring profitability.
Should I buy Argo Blockchain shares?
Overall, I do like the trajectory that Argo Blockchain is following. Its high growth and carbon-neutral outlook are very enticing. That being said, the fundamental business plan worries me. The heavy volatility of the crypto markets has the potential to offset any positive expansion of Argo. This is a huge red flag for me. As such, I won’t be adding any Argo Blockchain shares to my portfolio any time soon.
The post Argo Blockchain shares are falling: should I buy now? appeared first on The Motley Fool UK.
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Dylan Hood has no position in any of the hares 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.
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.
