Commenting last week on Riot Blockchain’s announcement that it has completed its acquisition of the 300 megawatt Whinstone facility in Texas (at a cost of $80 million in cash and 11.8 million Riot Blockchain shares), analysts at H.C. Wainwright said the acquisition of this power source “nicely enriches operating characteristics and the prospect of a Riot investment.”
In a note covered on TheFly.com, the analysts reported that Whinstone is big enough to expand its power output to as much as 750 megawatts, at a cost of $0.025 per kilowatt-hour. Wainwright says this is “about the lowest” price it’s seen in crypto mining, which should give Riot Blockchain an advantage in its cost of production of new Bitcoins.
In Wainwright’s opinion, this advantage suffices to lift Riot Blockchain’s valuation to $40 a share.
Separately, analysts at investment bank B. Riley raised their price target even further, to $44 a share, also citing Whinstone as the reason. Riot stock is “significantly de-risked” by securing access to the power it will need, notes Riley.
And yet, it’s not without risk. Consider that despite Bitcoin’s remarkable rise in value over the past year, Riot Blockchain has never actually earned a profit — not even last year. The company has reported two profitable quarters, but even in the most recent quarter, with Bitcoin prices ranging from $30,000 to nearly $60,000 for three solid months, Riot Blockchain only managed to earn about $0.09 per share.
Now that Bitcoin prices are back near the bottom of that range, that level of profitability isn’t assured. And even if Riot should manage to continue earning $0.09 a quarter and maintain that level of profitability all year long, we’d be looking at a $29 stock earning perhaps $0.36 per share — and selling for an 81 price-to-earnings (P/E) ratio.
Unless Bitcoin prices start ramping back up, and soon, Riot Blockchain looks to me like a dangerous stock to own.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.