Argo Blockchain shares: bull vs bear

Bullish: Rupert Hargreaves

I think Argo Blockchain (LSE: ARB) shares are one of the best ways for me to build my exposure to the cryptocurrency space. Over the past two years, the group has been developing a Bitcoin mining platform. This started off as a bit of a speculative bet, but it has become a profitable enterprise as the business has grown.

According to its third-quarter results, the company generated record earnings before interest, tax, depreciation and amortisation (EBITDA) of $26m for the period. Argo mined a record 579 Bitcoin and Bitcoin equivalent (BTC) during the period. At the end of September, the company owned a substantial 1,836 BTC itself.

Further growth in revenues and mining output is expected over the next year.

Two catalysts could drive further earnings growth over the next 12 months. These are the opening of the group’s Texas mining facility and the delivery of its 20,000 Bitmain Antminer S19J Pro machines.

The delivery of these previously contracted machines will begin in the second quarter of 2022 and significantly increase the organisation’s mining capacity.

And I think the group has plenty of funding available to pursue further growth opportunities in 2022 and beyond. The cryptocurrency space is expanding rapidly, and Argo has the connections and funding required to capitalise on this growth.

The company may also benefit if the Bitcoin price continues to rise. Argo has been borrowing against the cryptocurrency on its balance sheet to fund growth, which could pay off if the price of Bitcoin continues to increase.

Rupert Hargreaves does not own shares in Argo Blockchain.

Bearish: Alan Oscroft

So the Argo Blockchain share price is up 1,800% in 12 months is it? And that’s after a 60% fall from its all-time high earlier this year, which is supposed to make it look cheap again now?

The company is in the process of expanding via its new Texas cryptocurrency mining operation, which should significantly boost its capacity. That’s helping keep the growth narrative going, and does seem to be supporting the shares.

But my problem is the same problem I’ve had with many a jam-tomorrow growth stock over the years. Its valuation. At the latest reckoning, Argo is sitting on a stash of 1,836 Bitcoin and Bitcoin equivalent (BTC). At the current Bitcoin price, that’s worth approximately £85m.

That’s a decent amount of coin, for sure. But what value is the market placing on it? The Argo market cap stands at around £609m today. So Argo Blockchain is valued at more than seven times its current BTC assets.

I know the valuation is based on expectations of future mining, and not just on the accumulation to date. But there’s an awful lot of future growth included in today’s share price. And I see precious little safety margin there.

The valuation also seems to assume that Bitcoin and other cryptocurrencies will keep on climbing. I would never have guessed Bitcoin would reach today’s level, but I’ve no idea what might happen in the next few years. So making that assumption would be a pure gamble for me. And I don’t gamble.

Alan Oscroft has no position in Argo Blockchain.

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