2021 has not been kind to Bitcoin miner Riot Blockchain (RIOT). After riding the Bitcoin craze to dizzying heights throughout 2020, and into early this year, Riot peaked just short of $78 a share in mid-February. However, it's lost nearly two-thirds of its value since then.
And yet, despite the stock's rollercoaster maneuverings, on Tuesday B. Riley analyst Lucas Pipes stepped in to recommend buying Riot Blockchain along with a $43 price target, predicting a more than 50% profit on that trade within a year. (To watch Pipes' track record, click here)
In his initiation of coverage report, Pipes describes Riot as "a well-established crypto miner with a leading position from a capacity perspective." For one thing, Riot will soon boast a workforce of 22,946 "Antminer" Bitcoin mining computers, "utilizing approximately 73 megawatts (MW) of energy," says the company — and plans to more than triple that number to 70,000 miners by the end of next year.
For another, says Pipes, Riot recently spent $80 million cash, and 11.8 million of its own shares, to acquire the 300 MW Whinstone facility in Texas from Northern Data for $80M in cash and 11.8 million of its own shares. This acquisition will give Riot access to the electricity it needs to power all those Bitcoin miners — and should it need even more energy, Pipes notes that Whinstone "is expandable to 750 MW of capacity."
The quarrel is not with the physical assets of the business, though, but with the numbers that Riot is using those assets to produce. According to Pipes, you see, Riot stock is a "buy" because it will earn $0.55 per share mining Bitcoin (and other cryptocurrencies) this year, then grow that to $0.92 per share next year as it scales the business. And maybe that's the case. Bitcoin's value was going up pretty steeply, pretty recently, enabling Riot to put together back-to-back profitable quarters in Q4 2020 and Q1 2021, respectively.
That being said, Riot hasn't ever produced a full year profit since it got into the business of Bitcoin mining. It's worth pointing out at this point that Riot changed its name, and its business model towards cryptocurrency mining only in 2017. Prior to that, it spent decades as a producer of diagnostic machinery for the biotech industry named Bioptix Inc. — and before you ask, no, "Bioptix" wasn't profitable, either.
Even if Riot does manage to massage its numbers into something resembling a GAAP profit this year, the company's cash flow statement shows that it's burning cash hand over fist. At the same time Riot was reporting a $7.5 million "profit" in Q1, its cash flow statement showed negative free cash flow of… $64.5 million.
And yet now, with the price of Bitcoin plummeting 33% over the past two weeks, with Elon Musk saying he won't trade his Teslas for Bitcoins anymore, and with China looking more intent on quashing the entire cryptocurrency industry by the day, Pipes thinks that now is the right time to buy Riot.
Maybe he's right about that. Still, before you decide to jump into this stock with both feet, these things are worth bearing in mind.
Overall, RIOT gets a Moderate Buy rating from the analyst consensus, based on 2 recent Buys. The relatively small number of reviews reflects the ‘under the radar’ profile of most crypto stocks in the market. Shares in RIOT sell for $27.63, and the $36.50 average price target suggests a 32% upside potential. (See RIOT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.