Shares in UK-listed Bitcoin miner Argo Blockchain (LSE: ARB) have tanked recently. A year ago, this stock was trading near 160p. However today, the share price is below 60p.
Is this a buying opportunity for me? Or are there better growth stocks to buy today? Let’s discuss.
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Argo Blockchain shares: two reasons to be bullish
Looking at Argo Blockchain shares today, I can see a few reasons to be bullish.
For a start, the valuation is low after the recent share price fall. At present, analysts covering the Bitcoin miner expect the group to post earnings per share of 15.2p for 2022. That puts the stock on a forward-looking P/E ratio of less than four. That does seem very cheap. Although I will point out that my stock market data provider classifies Argo as a value trap.
Secondly, Argo continues to grow. In its full-year results for 2021, posted in late April, the company told investors that revenue climbed 291% last year to £74.2m. Looking ahead, analysts expect top-line growth of 40%+ this year.
It’s worth noting that Argo’s new Helios mining facility has recently been ‘energised’ and is set to commence mining this week. This will boost the company’s mining power. It could also boost sentiment towards the stock.
Three big risks to consider
My main concern about Argo Blockchain, however, is that future revenues and profits are very hard to forecast due to the fact that they’re dependent on the price of Bitcoin, which is notoriously volatile.
In 2022, the price of Bitcoin has fallen from around $46,000 to near $30,000. That’s a huge drop. And where it goes from here is anyone’s guess.
In the current ‘risk-off’ environment, I wouldn’t be surprised at all if it fell through $30,000 and headed towards $20,000. At the same time, I wouldn’t be surprised if it bounced off $30,000 and rebounded back up to $40,000.
Given the uncertainty here, there’s no guarantee that Argo’s revenues and profits are going to move higher. If Bitcoin was to fall, Argo’s earnings per share would most likely fall too. In that scenario, the stock may no longer look so cheap.
A second concern for me is in relation to the company’s competitive advantage, or lack of it. Looking at the business model, I don’t see any real ‘barriers to entry’ here. This means another crypto miner could easily capture market share.
Finally, it’s not an ideal environment for speculative growth stocks like Argo Blockchain right now. With so much economic uncertainty, investors are pulling their money out of this area of the market. So, the share price could be volatile in the near term.
Better growth stocks to buy
Weighing up the risks with the potential reward, I’m going to leave Argo Blockchain shares on my watchlist for now. My view is that there are better growth stocks to buy in the current environment.
This post was originally published on Motley Fool
