Is Argo Blockchain Share Price Heading To Zero?
As a shareholder in Argo Blockchain (LSE: ARB), I’m certainly not sitting pretty! The share price has crashed, losing almost half of its value in the last week alone. It is now 84% below the level of a year ago.
Despite that, there is still room for it to go lower. So, should I sell my holdings now in case the stock ends up going to zero?
What’s Behind the Argo Blockchain Share Price Crash?
A stock typically does not fall more than 80% in a year for no reason. Argo Blockchain is no exception.
The Argo Blockchain share price had already struggled for many months. The company mines cryptocurrencies such as Bitcoin. So the falling price of Bitcoin hurt the value of what the company mined, as well as investors’ perceptions of the firm’s long-term value.
However, what had already been a significant decline turned into a crash last week after the company released an announcement with what I thought was an alarming title: “Strategic actions to strengthen the company’s balance sheet“.
In itself, having a strong balance sheet is good business practice in my view. As a goal, I would applaud it. The reason I cringed when I saw the announcement title was because of the implication that Argo Blockchain needed to prop up its finances with leverage.
Liquidity transfer and sale of equipment
Argo proclaimed itself “pleased to announce” several steps it is taking to increase liquidity, which struck me as overly optimistic for what amounts to at least partially a fire sale.
After spending most of its life as a listed company trumpeting its expansion plans, the company has agreed to sell 3,400 mining machines for £6m. They are described as “new in box“. That smacks of financial desperation to me. It also suggests that the company’s aggressive expansion plans have significantly outstripped its ability to execute.
The company also plans to raise £24m, before tax, by issuing new shares. This will dilute existing shareholders.
On the plus side, both moves could help the company raise money. If it has enough cash to survive, it might prove its business model further. For example, if crypto prices increase, profits can increase. Mining continues and last month the company mined 215 Bitcoin or Bitcoin equivalents.
But I think the fundraising and equipment sales cut to the core of the management’s credibility. It has had to shore up liquidity by selling equipment still in its boxes that would have been used to deliver Argo Blockchain’s growth plan. High electricity prices mean the huge US data center is operating less than expected.
I think Argo can go to zero
Between high electricity prices challenging the business model, a liquidity crunch and growing doubts about management competence, I think further rights issues or simply an increasingly uneconomic business could end up pushing the Argo Blockchain share price close to zero – or even zero.
I am therefore considering selling my stake, depending on how the business performs in the coming months.
The post Is the Argo Blockchain share price headed for zero? appeared first on The Motley Fool UK.
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C Ruane owns shares in Argo Blockchain. The Motley Fool UK has no position in any of the stocks mentioned. Views on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we provide 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.
The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which have several risks, including total loss of invested money. Readers are responsible for performing their own due diligence and for obtaining professional advice before making investment decisions.
Motley Fool UK 2022
