Riot Blockchain: Riding the Bitcoin Growth Wave
The mainstream adoption of Bitcoin is gathering pace. What was once an unruly asset tagged as fit only for speculators and criminal online activity, has blossomed into a financial instrument coveted by the world’s most prominent investment firms.
Companies have been stock piling BTC, and on Monday, Bitcoin surged again after it became apparent Tesla had invested $1.5 billion in the Digital Gold.
Surging BTC prices are good news for holders, but they are also a boon for any companies in its orbit. For example, over the past two trading sessions, shares of bitcoin mining company Riot Blockchain (RIOT) took off to the tune of 75%. In fact, over the past 12 months, RIOT shares are up by an incredible 2650%.
The thing is, assessing any Bitcoin-related companies is complicated by the fact that when the cryptocurrency surges or drops, it has a direct impact on these companies’ valuations.
H.C. Wainwright analyst Kevin Dede highlights the issue by noting, “[an] added layer of difficulty faces those attempting to value bitcoin miners.”
Faced with Bitcoin’s rising price, the analyst recently adjusted his forecast for RIOT. Dede raised his price target from $7.5 to $28 - yet the stock has surged beyond it now. Dede’s target sits 32% below the current share price. Yet, the 5-star analyst’s rating stays a Buy. (To watch Dede’s track record, click here)
The change to Dede’s Riot model is not only a reflection of the heightened Bitcoin price, but also the company’s growing arsenal to mine it.
Riot put in several mining machine purchase orders last year which, by the end of 2021, puts the company on course to have 37,640 machines with the ability to produce 3.8 EH/s (which means 3.8 exahash operations can be completed in one second).
By Dede’s calculations, this suggests “Riot alone should be contributing 2% of the overall network hash rate.”
Accordingly, the company will be generating more revenue, and for FY21, Dede raised his revenue estimate from $53.3 million to $158.6 million and EPS forecast from $0.26 to $0.70.
Looking further ahead to next year, Dede expects the first full year of Riot's network operation, and which by then will begin at 3.8 EH/s, to offer a “major color change in the valuation painting.”
Assuming Bitcoin’ price stays in the $40,000 neighborhood, Dede thinks Riot's sales “could be in the $230 million range, delivering EPS of $1.10 per share.”
Some stocks fly under the radar, and RIOT is one of those. Dede's is the only recent analyst review of this company. (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.
