Gangsta Gone Legit

Proprietary Data Insights

Financial Pros Top Blockchain Stock Searches This Month

RankNameSearches
#1Coinbase2,668
#2Riot Blockchain Inc1,195
#3Microstrategy Cl A1,094
#4Marathon Digital Hldgs Inc1,087
#5Silvergate Capital Corp Cl A408

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Stock Analysis

Gangsta Gone Legit

Watch enough crime movies you’ll come across this theme…

…it’s when the head boss is trying to get “out of the game” of organized crime and into legit “clean businesses”

Believe it or not… in the stock market, shady pump and dump companies dream about becoming “legit.”

But it rarely ever happens. 

However, Riot Blockchain (RIOT) hopes it can. 

Before it moved into the blockchain, it was going by the name BiOptix, and failing miserably in the biotech sector. 

Somehow, “the rebrand” worked. And Riot Blockchain is a legit player in the bitcoin mining space. 

But does that mean it’s a stock worth holding if you’re an investor?

Right now, it garners the second most searches of cryptocurrency-related stocks amongst retail and institutional investors behind Coinbase (COIN).

And that company is a mess.

So, is RIOT any better?

 

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RIOT’s Business

Riot Blockchain (RIOT) is in the business of bitcoin mining. Its operations are broken down into the following segments bitcoin mining, data center hosting, and electrical products and engineering. 

In Q1 2022, RIOT mined 1,405 bitcoins at a cost of $13,590. 

Since then, Bitcoin is down considerably in 2022, trading below $20,000 not too long ago. But despite the massive sell-off, RIOT is still able to mine at a cheaper price than the price of bitcoin. 

RIOT has the largest bitcoin mining facility in the United States, located in Rockdale, Texas, and spanning 200 acres. And as of April 30, 2022, the firm had 46,375 miners deployed, with an additional 7,240 miners staged for deployment. 

And despite bitcoin being down this year, RIOT has actually managed to improve its total revenue numbers, increasing them by 244% to a record $79.8 million in Q1 2022. 

Furthermore, mining revenue jumped by 150% to a record $57.9 million during Q1 2022. 

Financials

RIOT has experienced explosive growth over the last couple of years. For example, its total revenues stood at $6.8 million in 2019, $12 million in 2020, and $213 million in 2021.  

And at a gross profit margin of 55.4%, RIOT continues to beat its competitors in that category.  

However, it’s not all mashed potatoes and gravy for RIOT. The firm has -$125.7 million in cash from operations. That is not a good look in a market where borrowing money has become more expensive, and fears of the economy slowing down are building momentum. 

RIOT has total debt of $21.8 million. And cash of upwards of $122.7 million, with a total market cap of approximately $622.6 million. 

RIOT has a current ratio of 3.79x and a quick ratio of 3.78x. 

Both ratios are very healthy, with anything above 1x, indicating the firm has plenty of assets to cover its short-term liabilities. 

Yet, that can quickly fall as the company burns through cash.

Valuation

RIOT has a P/E Ratio (TTM) of 25.62. However, it is set to drop to 7.04 (forward).

The firm has a strong price-to-sales ratio at 1.85x, which is significantly better than the sector median of 2.93x.   

RIOT has a negative EBIT Margin and EBITDA Margin. A negative EBITDA indicates that the company has poor cash flow. And although the Net Income Margin is positive at 7.48%, it’s a pretty low figure. 

But make no mistake about it. RIOT is a firm that’s growing rapidly. It has experienced over 720% revenue growth (YoY). 

In fact, its 5-year revenue growth (CAGR) stands at a whopping 388.8% 

Our Opinion – 2/10

Shares of RIOT are down more than 75% YTD. But that’s not the only problem with the stock. 

You see, before there was ever a bitcoin ETF, the only way investors could get bitcoin exposure through a listed exchange was through bitcoin mining stocks. 

However, gaining access to bitcoin is a lot easier now. And that’s why we believe investors will continue to move away from hard-to-understand businesses like bitcoin miners and jump into more pure bitcoin plays.  

Despite many of the promising valuation metrics, the company cannot hide its substantial cash burn.

Newer companies, or recently hyped up ones, that show positive earnings but negative cash flow are big red flags.

That generally means the earnings are being held up by capital expenditures and will eventually crash.

Stay away from RIOT.

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