Despite posting some positive financial performance earlier this year, the Argo Blockchain (LSE:ARB) share price has struggled over the past 12 months. In fact, over this period, the shares are down 69%. There has been a clear trend lower here, but as it falls the company valuation becomes cheaper. So at 70p, is this a good value buy for me?
Trying to find a fair value
It’s always hard to pin down an accurate value on a company like Argo Blockchain. For a start, it is unique in terms of comparison to other listed stocks. It’s a cryptocurrency mining company, with very few similar firms out there that are listed in the UK.
Instead of comparing its value to other stocks, I can look at a more generic measure such as the price-to-earnings ratio. Currently, using an earnings per share of £0.021, the P/E ratio works out to be around 33. This is double the FTSE 100 average, but I would classify it as a growth stock.
As a growth stock, investors tend to be happy even with a high P/E ratio because they think that future earnings will be large. As a result, they pay a premium on the current price due to the future potential.
So at 70p, I think a P/E ratio of 33 is a fair value. However, I wouldn’t say the current ARB share price is fantastic value. Rather, I think at previous levels above 200p the stock was overvalued.
Other points to note about the ARB share price
Putting the P/E ratio to one side, the enterprise value is worth considering.
The enterprise value is an alternate measure of valuing a company. The market capitalisation is the main way most investors use to measure value. But it can be distorted by fluctuations in the share price. The enterprise value looks at the total value of a business, including points like cash and debt.
At the moment, the ARB share price gives a market cap of £330m, but an enterprise value of £337m. The fact that they are both similar again leads me to conclude that 70p is a pretty fair price for the company to trade at right now.
One point that is worth flagging is that the ARB share price (and the fate of the company) is heavily impacted by the price of the coins it mines. In large part, this relates to Bitcoin. If the price of Bitcoin doubles, then there’s a high likelihood the share price will shoot higher.
This is in part due to the higher value of what’s being mined, and so the higher revenue that should result. It’s also because some investors will buy ARB shares as a way of getting exposure to Bitcoin. This is in the same way that some people buy oil stocks to get exposure to oil price movements.
Overall, I personally think 70p is a fair value for the ARB share price. Therefore, until something materially changes, I won’t be investing.
The post Is the Argo Blockchain (ARB) share price good value at 70p? appeared first on The Motley Fool UK.
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Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. 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.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Motley Fool UK 2022