It’s been a very busy year so far for Argo Blockchain (LSE: ARB). Since the start of 2021, the cryptocurrency miner has released a plethora of announcements. And this week it announced its full-year results.
I reckon Argo Blockchain shares can keep climbing and I’d buy the stock. But I think its worth taking a closer look at the 2020 numbers.
I’m not surprised with the overall positive set of figures. Last year was transformational for the company. Total revenue for 2020 increased by 120% to £19m.
But its mining margin for the year was 41%, down from 60% in 2019. Argo Blockchain puts this down to “challenging market conditions, including Bitcoin halving in May 2020 and the global impact of the COVID-19 pandemic”.
What I think should boost Argo Blockchain shares is that for the first time since the company’s inception, it has generated a net profit of £1.7m. This comes after it made a loss of £0.7m in 2019.
This gives me some comfort that the miner is not only increasing its revenue but also keeping its costs at bay. In fact, it even highlights that its “administrative expenses were reduced by £1.1m to £2.4m as a result of series of cost reduction efforts”. This should help with profitability in the long term.
So far the outlook for the company looks rosy, which should be positive for the Argo Blockchain share price. I’ve previously commented that the first three months of 2021 have been the most profitable quarter for the miner to date. It generated £13.4m in revenue during this period alone along with a mining margin of 81%. That’s impressive.
I think the backdrop for cryptocurrencies remains positive. Even Argo Blockchain highlights that it’s being “driven by rising global demand, growing acceptance and confidence in digital currencies as a new asset class”. And I’d agree with this statement.
The credibility of cryptocurrency has been boosted by the likes of Tesla, the electric car maker, investing into Bitcoin and accepting payments for its vehicles in the digital asset. Online payment companies, such as PayPal are now supporting digital currencies and there’s growing interest from blue-chip asset managers.
I believe this confidence and momentum in cryptocurrencies will continue to grow over the long term, which should increased the value of Argo Blockchain shares.
That said, the stock is volatile and investors need to be prepared for this. I don’t think it will be smooth sailing for the share price, so I’d only invest what I can afford to lose. The shares are linked to the price of Bitcoin. So if this falls, it’s likely the stock price will decrease too.
While 2020 was the first ever profitable year for the miner, there’s no guarantee this will continue. Even the company admits that “mining margins are expected to ease back from the 80% average level seen in the first quarter of this year”. It’s a relatively new technology so profitability is likely to be volatile.
The mining facility
The company has appointed Navier to help develop its Texas facility. When finished, it will allow Argo Blockchain to expand its mining capacity and have greater control over its operations.
I’m bullish on the long-term prospects and hence I’d buy Argo Blockchain shares in my portfolio.
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Nadia Yaqub has no position in any of the shares and cryptocurrencies mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin, PayPal Holdings, and Tesla and recommends the following options: long January 2022 $75 calls on PayPal Holdings. 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.
Motley Fool UK 2021