Argo Blockchain Stock: Cash Burn Problem

Argo Blockchain (ARBK) is a cloud-based crypto mining company. The company’s service provides access to mining rigs, which perform the complex crypto-mining operations for its users and then directly deposit all coins mined into users’ digital wallets. Argo Blockchain was incorporated in 2017 and is headquartered in London, UK.

I am bearish on ARBK stock even though the company completed its ADR listing on Nasdaq in late September 2021. We must wait for more quarters to get a more representative data analysis of its performance as a public company in the U.S. Shares of Argo Blockchain started to trade at $15 as the company raised $112.5M in the U.S. stock market, selling 7.5 million shares.

Crypto stocks like ARBK can be subject to volatile price swings, especially with pending global cryptocurrency market regulation.

Argo Blockchain Business News

The crypto mining company has decided to diversify its business into a non-mining blockchain business named Argo Labs.

“Argo Labs will mainly focus on network participation and strategic diversification through the efficient deployment of the company’s crypto treasury assets. The network participation will consist of providing infrastructure support, running nodes and validators, and staking in innovative projects.”

On December 7, 2021, there was news about ARBK’s mining revenue, which increased 15% in November.

Argo Blockchain has plans to expand fast as it announced its intention to raise $57.5 million via senior notes and use these funds for building a Texas crypto mining facility, general corporate purposes, and also for exploring future acquisitions.

Q3 2021 Earnings: Skeptical on Non-IFRS Measures

The Q3 2021 financial results were mixed. We have a very limited trend for Argo stock earnings at the moment.

EPS GAAP of $0.04 was a miss by -$0.01, and revenue of $26.35 million was a miss by -$4.06 million.

Despite the miss on EPS and revenue Argo Blockchain reported that it “generated record revenue of £19.3 million” and “record £12.9 million of net income and £21 million of EBITDA”.

I am too skeptical of the fact that the mining company reported itself that “Bitcoin and Bitcoin Equivalent Mining Margin and EBITDA are financial measures not defined by IFRS.” Why am I concerned? The reason is that high numbers reported, as in the case of Q3 2021, the Bitcoin and Bitcoin Equivalent Mining Margin of 85% is not reflective of true financial performance and costs.

It is a very positive factor, though, that the company itself mentions this limitation and even goes one step further by informing investors that costs such as depreciation, interest income, taxes, and fluctuations in the value of digital assets.

Fundamentals – Risks

Argo Blockchain’s Piotroski Score of 4 is average and ranks in the 50% percentile for its sector. A positive note is that the Altman Z-score of 10.1 signals a strong balance sheet, which is evidenced by a very low debt/equity ratio of 0.07 as per last quarter. However, Bitcoin has started 2022 on a weak note.

There is a cash burn problem for ARBK, which raises concerns, especially with the announcement of the Texas facility as capital expenditures will rise.

Wall Street’s Take

Argo Blockchain has a Moderate Buy consensus based on only one Buy rating. The average Argo Blockchain price target of $21.00 represents 159.6% upside potential.

Conclusion

The crypto mining company has recently started its dual listing in the U.S. stock market as it is primarily listed in the UK stock market. This means it is too early to get a more analytical perspective of its financial performance. However, the company has a cash burn problem despite net profitability.

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