Argo Blockchain (LSE:ARB) shares would have given me a 15x return if I’d bought a year ago, when shares were trading below 10p. Back in February, shares closed at 280p, but now have halved down to 140p. Given that the company is a crypto miner, it’s logical to expect high volatility to match that of the coins. However, there are several reasons why we like these shares at the moment, and would look to add exposure to our portfolio.
High profit margins
As with any business, the higher the profit margins the easier it is to make money. For a start, it means that you need to generate less revenue than other companies to still make the same amount of profit. It also gives you a larger buffer for higher costs or expenses, allowing profit to still be made.
For Argo Blockchain, the profit margin is high. It has an industry-leading mining margin of 85%. In the latest Q3 results, it was able to generate net income of £12.9m from revenue of just £19.2m. As an investor, this gives me confidence. Especially when I consider that quarterly results are posting records, the trend is higher.
Another component that aids this margin is the positive revaluation of the digital currencies. This is due to the broad nature of a rising crypto market (Bitcoin is up 100% over a one year period). So naturally margins will be boosted as this kicks in both unrealized and realized gains on this part of the financial statement.
Expansion in Texas
The company is progressing well with the 800-megawatt data center in West Texas. This will increase capacity for mining considerably. Argo plans to have the facility up and running by the middle of next year. Although the land is reported to only cost around $17.5m, the full completion cost could spill over into the billions.
To this end, the company are offering out some bonds to US investors, as well as getting an ADR listed on the NASDAQ. This should increase funding, especially in the lucrative US markets.
Clearly, this project does represent a risk to investors, but it’s also an incredible opportunity that could really propel the business to the next level in coming years. For Argo Blockchain shares, it could enable a return back to the dizzying heights seen earlier this year.
Crypto bull run pushing Argo Blockchain shares
The final reason we’d consider buying shares is as part of a wider crypto bull run. Bitcoin, along with many other smaller coins, have hit record highs in the past few months.
The total crypto market cap also recently passed the $3trn mark. Even though we’ll see wobbles along the way (Ethereum is don 10% over the past week), the long-term trend still look positive. As a result, this should benefit Argo Blockchain shares through the realized sales of digital currencies along the way.
Overall, we think that buying in at 140p could offer an attractive risk reward play, as well as an equity option if investors don’t feel comfortable buying digital coins directly.