Riot Blockchain's stock is trading at approximately $23, as of 28 Mar 2022. Over the past year, the stock is down by 52% whilst the S&P 500 is up by 16%, meaning the stock has underperformed the market by approximately 69% over this period.
Is Riot Blockchain a good investment? Let’s take a closer look and see what the numbers tell us.
Why are fundamentals important?
‘Fundamentals’ are a set of key metrics which can help you, as an investor, assess the financial health of an organization as well as its growth prospects. Over the long term, the price of a company's stock is usually tied to its fundamentals. It makes sense then to start by analysing these when we are considering if it has the makings of a good long-term investment.
There are a number of fundamental metrics to look at, but the ones we'll focus on are price to book value (P/BV), price to sales ratio (P/S ratio), earnings per share (EPS) and debt. When they are analyzed together, these metrics can start to 'paint the picture' and help you understand if a company is a solid investment.
With this in mind, let's take a look at Riot Blockchain’s fundamentals and see if they can tell us anything about the company’s potential as an investment opportunity.
Riot Blockchain's fundamentals
A good place to start is to look at Riot Blockchain's EPS, which will tell us how profitable the company is on a 'per share' basis. This metric is calculated by taking a company's net income (after dividends on preferred stock) and dividing this by the number of outstanding shares.
Riot Blockchain's EPS is -0.1 based on its most recent financials, and year-on-year, this grew by 72%, which is encouraging.
Next, let's look at the P/S ratio, which looks at a company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months, and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues. The consensus opinion is that stocks with a lower P/S ratio offer better value, and stocks with a very low P/S ratio are known as 'value stocks'. However, what is considered a 'high' or 'low' P/S Ratio is relative and can vary across different sectors, so the best way to objectively assess this is to compare a company against its industry peers.
Based on its most recent financial statements, Riot Blockchain's P/S ratio is currently 9.1. Compared to the sector-wide average of 2.8, this is 221% higher, indicating that the stock may offer less value compared to other companies in the same sector.
Another key metric to look at is a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
Riot Blockchain's P/BV is 1.8 according to its most recent financials, which is 71% higher than the industry benchmark of 1.
Finally, it's always worth looking at a company's debt profile before deciding to invest in order to assess the risk. A high amount of debt can be a problem if a company is not generating enough cash flow to service its debt, and some sectors rely on debt more heavily than others.
According to its most recent financial statements, Riot Blockchain has total debt of $13.44m, The company also has cash & short-term investments totalling $482.66m, giving it a 'net debt' of $-469.22m.
Based on these figures, Riot Blockchain's current levels of net debt don't worry us, as the company generates enough revenue to service its debt, and is not using debt to fund their operations, which is good to see.
Is Riot Blockchain a buy?
All in all, we’ve noticed some worrying trends at Riot Blockchain.
To be more specific, the stock is down by 52% over the past year and is underperforming the broader market over this period. Moreover, compared to companies in the same sector, RIOT has a higher P/BV and higher P/S ratio. This just doesn't give us confidence that the company is on the right track.
All things considered, we're just not sure that Riot Blockchain is doing enough to deserve a spot in your portfolio right now, but it may be worth adding to your watchlist to keep an eye on in the future.
As with any stock however, there are additional factors to consider before making an investment decision. This analysis is general in nature and based on historical data, and it does not take into account your specific investing objectives or financial circumstances. Additionally, this article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long term outlook. Please do your own due diligence before deciding to invest.