Is Riot Blockchain a Buy Under $30?

According to 360 Research Reports, the cryptocurrency mining market is estimated to expand at a CAGR rate of 16.1%, hitting $1.614 billion by 2025.  However, the price of crypto mining stocks strongly depends on the price of cryptocurrencies, network hash rate, block rewards, and the price of miners. With a Bitcoin price drop to as low as $41,967 during the weekend, shares of crypto mining companies have followed the same trend. 

Which is why today I’m going to take a look at one of the largest crypto miners in North America, Riot Blockchain, Inc. (RIOT).  Headquartered in Castle Rock, Colorado, RIOT has gained 55%, underperforming its benchmark, Bitcoin (BTC), which has gained about 70% over the same period. 

Shares of RIOT dropped 13.13% on Friday, and at the time of publishing this article on Monday morning, are down another 8%.  So is now a good time to scoop up shares of RIOT?  Or should investors stay away?

Recent Developments 

On December 2nd, the company provided a monthly production and operations update. Riot Blockchain was able to produce 466 Bitcoins in November, which is an increase of 298% compared to 117 Bitcoins mined in November 2020. In addition, this figure is slightly up from the 464 BTCs received in October 2021. Meanwhile, the company operates a fleet of about 29,095 miners, with a hash rate of 3.0 exahash per second (EH/s). Also, Riot’s 2022 hash rate capacity is expected to increase to 9.0 EH/s, allowing it to mine more BTCs. 

Recent Quarterly Performance & Analysts Estimates

On November 15th, Riot Blockchain reported earnings for the third quarter of 2021. In Q3, RIOT’s revenue increased by 2,534.1% year-over-year to $64.8 million. However, the company failed to meet Wall Street consensus estimates of $67.15 million (missed by $2.35 million). Moreover, the company reported a net loss of $15.3 million due to a stock-based compensation expense of $36 million and an unrealized loss on marketable equity securities of $11.2 million. As a result, RIOT’s GAAP EPS for the third quarter stood at ($0.16), coming in significantly below analysts' expectations of $0.36. 

In Q3, the company increased total bitcoins received from its mining operations by 91% on a quarter-over-quarter basis to a record of 1,292 BTC compared to 675 BTC mined as of Q2FY2021.

Moreover, the company's Adjusted EBITDA came in at $37.6 million, up from the year-ago loss of $0.4 million. 

When it comes to the fourth-quarter projections, analysts expect Riot Blockchain's EPS to increase 408.43% year-over-year to $0.49. Furthermore, a $96.31 million average revenue estimate for the fourth quarter of 2021 indicates an immense 1,720.32% growth compared to the year-prior quarter.

How much volatility are options traders expect for the stock? 

Taking a look at the December 17th, 2021 option chain, we can define the expected price movement utilizing the long straddle options strategy. Hence, my calculations imply that RIOT's stock could rise or fall by about 22.4% by the December expirations from the $29.00 strike price. That aside, let's take a closer look at the puts/calls ratio as well. In Riot's case, the number of open puts at the $29.00 strike price outweighs the open calls by around 2.95x. In addition, the puts at the $30.00 strike price outweigh the call options around 1.6x, with 3,906 open puts to 2,421 open calls. This divergence comes up with that options traders are bearish on Riot stock.

The Bottom Line

I think RIOT stock is best to be avoided for now. While RIOT should benefit from the industry's growth in the long term, the company's share price may presently face increasing volatility levels amid fluctuations in BTC price. It is also important to note that the dollar value of Riot revenue primarily depends on the BTC price. As a result, lower BTC prices may result in earnings miss. Finally, the options market implies a bearish market sentiment for its stock.

RIOT shares fell $2.36 (-8.24%) in premarket trading Monday. Year-to-date, RIOT has gained 51.85%, versus a 23.04% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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