Have Argo Blockchain shares avoided a complete disaster?

Argo Blockchain shares have suffered terribly this year as Bitcoin languishes and other cryptocurrencies capitulate.

The price of Bitcoin has tumbled dramatically in the last week, with the famous cryptocurrency trading briefly trading below $18,000 over the weekend to top off a year of steady declines.

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As one would expect from a company inextricably linked to the price of Bitcoin, Argo Blockchain shares have tracked Bitcoin to the downside.

Argo Blockchain shares are currently down 61% year-to-date and are worth around a tenth of what they were at their peak.

Anyone that bought near the peak will unfortunately be deep in the red, but have Argo shares avoided the complete disaster of seeing its price of trading significantly below the 20p-30p range? Argo Blockchain shares spent much of late 2020 trading between 20p-30p and most early stage investors would have bought into prior to the price breaking through this level.

Argo Blockchain Financials

Argo Blockchain has arguably made significant operational steps forward.

Argo Blockchain reported a Q1 revenue rise of 9% to £14.9 million year-on-year, driven by the group’s hash rate growth, which served to offset lower Bitcoin prices in the term, along with an adjusted EBITDA rise of 24% to £14.5 million in its Q1 2022 results.

This followed a 291% jump in 2021 revenue to £74.2 million. With Argo trading 34p the company is valued at only 2x turnover which for many growth companies would suggest deep value.

However, the emphasis for Argo is on their margins and the cost of mining a Bitcoin versus prevailing market prices.

Argo Blockchain confirmed an average cost per Bitcoin mined of $9,779, which currently provides the firm with a gross profit in excess of 100% on the cost of mining the cryptocurrency. This metric is key because if we see Bitcoin fall beneath $9,779 their mining operations will become uneconomical.

Argo Blockchain began mining Bitcoin from its new Helios facility in May, and said it expected to increase its hash rate to 5.5 EH/s by the close of 2022.

The company mined 470 Bitcoin and Bitcoin equivalents, representing a 21% leap in the last year. The group had HODL of 2,700 Bitcoin and equivalents as of 31 March 2022, with a value at the current price of Bitcoin at $55.9 million.

Argo Blockchain currently has a historical PE ratio of 4.6. This does suggest value but these earnings were recorded when Bitcoin was much higher. Any profit margins could be quickly wiped if we see a significant move below $20,000.

However, analyst point to the prior moves in Bitcoin that were reversed over time to eventually see the crypto move to fresh all time highs.

“There is some encouragement for battered Bitcoin investors in the previous price performance of the cryptocurrency. It has suffered crypto winters before and come back to have its day in the sun,” said AJ Bell head of investment analysis Laith Khalaf.

“Indeed, Bitcoin’s worst recent performance saw the cryptocurrency fall by 83% in the year to December 2018. It then went on to reach fresh record highs in 2020 and 2021.”

“So it wouldn’t be a total surprise to see Bitcoin stage a Lazarus-like recovery.”

Whether Argo Blockchain shares avoid complete disaster will be in the hands of Bitcoin traders that are increasingly trading Bitcoin on economic risk sentiment to the extent Bitcoin is becoming leading indicator of stock markets.

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