On Friday, Compass Point adjusted its outlook on Argo Blockchain ADR shares (NASDAQ: ARBK), reducing the price target from $3.00 to $1.00, while maintaining a Neutral rating on the stock. This adjustment follows Argo Blockchain's first-quarter 2024 results, which missed consensus estimates.
The cryptocurrency miner's earnings were impacted by higher than anticipated hosting and power costs, coupled with a reduction in power curtailment credits. Compass Point's assessment indicates that Argo Blockchain's hash costs were approximately $0.083 during the first quarter, which was profitable at the time. Still, with current hash prices dropping to between $0.05 and $0.056, the company is now operating at a loss and facing cash burn due to debt amortization.
Argo Blockchain's financial position includes roughly $12 million in cash and $52 million in debt. This level of indebtedness constrains the company's ability to expand its hash rate or invest in new machinery.
Despite these challenges, Argo Blockchain still has the potential to grow through the development of smaller sites, ranging from 10 to 20 megawatts, or by capitalizing on favorable pricing for machines after the upcoming Bitcoin halving event.
The revised stock price target of $1.00 by Compass Point is based on a 7x EV/EBITDA multiple applied to the firm's newly lowered earnings estimates for Argo Blockchain. This valuation reflects a more conservative outlook on the company's future earnings potential in light of the current market conditions.
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