Riot Blockchain: Is This Crypto Game Worth The Risk?

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Blockchain and cryptocurrency are buzzwords in the investing world today. Once an asset class only invested by aggressive millennials who were banking on a massive paradigm shift, more and more investors are now cramming into this space.

Among the crypto-related investments aficionados look to for returns are crypto miners. One of the most prominent names in this space is Riot Blockchain Inc. (RIOT).

Riot is one of the major state-owned Bitcoin mining companies in the United States and has recently seen impressive success. Driven by rising Bitcoin prices, this miner posted strong second-quarter results in August, beating analysts’ estimates in terms of both revenue and sales.

However, investing in cryptocurrency comes with a certain level of risk associated with it. I am neutral on the stock. (See RIOT stock charts on TipRanks)

Record second quarter results

Riot Blockchain posted superb second quarter results. The company reported revenue of $ 31.5 million, exploding the $ 1.9 million riot reported in the same quarter last year. This represents a massive 1,540% jump in income.

The crypto miner’s net income for the second quarter of 2021 was $ 0.22 per share, down from a loss of $ 0.31 last year. Any business that goes into the dark in terms of revenue is worth considering. Indeed, crypto enthusiasts are on board with Riot right now.

This net result was boosted by margins, which improved to 70% in the last quarter. These margins eclipse the 25% margins reported in the same period last year.

It was a huge victory for Riot shareholders and those who are bullish on the industry. Riot’s share price reacted accordingly.

Given where the average Bitcoin price was in the last quarter (around $ 46,000), there is a lot of upside potential for Riot, if Bitcoin prices remain high. That said, Riot appears to be in a strong financial position to weather any storms that may arise. The company reported total cash and Bitcoin of $ 195.4 million at the end of the last quarter.

Riot Files auto-save offer

Riot Blockchain has filed a prospectus with the SEC, which allows the company to offer, sell and issue up to $ 600 million in common stock. According to the prospectus, shares of the company may be issued or sold from time to time by agreement with Riot’s sales agents.

RIOT shares traded lower after the announcement, as expected. In general, share issues tend to be dilutive and negative for existing shareholders. Additionally, it is questionable why Riot would make such an offer, given the company’s current cash and cash equivalents position.

However, this show could be shot bullish, with a view to growth. If Riot were to use this capital to fund an aggressive expansion program, long-term investors could potentially benefit.

RIOT stock has underperformed crypto lately

As mentioned, due to the recent show and bearish sentiment in some segments of the hyper-growing market, companies like Riot haven’t seen the enthusiasm you might expect.

Riot’s share price has risen significantly since the start of the year. That said, RIOT’s stock is still more than 50% below its retail mania-fueled peak earlier this year.

With crypto prices taking off again, you would think this stock would take off. However, RIOT stock actually fell 9% in July as Bitcoin prices rose.

This divergence suggests that investors may be wary of Riot’s valuation. Growth in the company’s revenue and bottom line suggests that a high multiple makes sense. However, the question in which Riot can maintain this breakneck growth seems to be the question currently on the minds of many investors.

Wall Street takes

According to the TipRanks analyst rating consensus, Riot stock is a strong buy. Out of four analysts’ notes, there are four buy recommendations.

RIOT’s average price target is $ 47.75, which implies a potential upside of 57.2%.

Final result

Cryptocurrency mining is a risky industry to invest in. Investors who dive into this sector should be aware of the wild fluctuations that could arise. Needless to say, investing in Riot Blockchain requires a considerable risk appetite.

Interestingly, Riot has returned 930%, while Bitcoin has gained 354% in the past 52 weeks. Thus, the argument can be made that the advantage of crypto miners exceeds that of the underlying cryptocurrency itself.

However, it takes a heavy stomach to deal with the volatility that is likely to materialize over time.

Disclosure: At the time of publication, Chris MacDonald does not have a position in any of the titles mentioned in this article

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