Cryptocurrencies have generated exponential returns to investors over the past decade. For example, a $100 investment in Bitcoin (BTC) in January 2012 would be worth more than $800,000 today.
The primary catalyst of these market-thumping gains has been the recent widespread adoption of digital currencies. Several companies including Tesla (TSLA), Block (SQ) and MicroStrategy (MSTR) hold Bitcoin on their balance sheet.
Investors can gain exposure to the cryptocurrency in a variety of ways. While you can purchase Bitcoin on a cryptocurrency exchange such as Coinbase (COIN), investors can also buy shares of companies that mine the BTC token such as Riot Blockchain (RIOT) and Bitfarms (BITF). Today I’ll analyze both stocks to determine which is currently the better buy.
The bull case for Riot Blockchain
At the end of October 2021, Riot Blockchain held around 3,995 BTC tokens currently worth $166 million. The company mined over 2,900 Bitcoins in the first 10 months of 2021, which was an increase of 257% year over year.
Riot Blockchain expects to end the year with a fleet of 90,150 miners, up from 27,200 miners at the end of October 2021. It also expects to improve its hash rate capacity to 8.6 EH/s from 2.96 EH/s in this period. In order to expand its mining capacity, Riot will need massive amounts of capital as a single ASIC miner costs around $10,000.
In the last three quarters, Riot reported sales of $122.4 million, an increase of 1,702% year over year. The rapid increase in top-line can be attributed to an expansion in mining capacity as well as the acquisition of Whitstone, in addition to the increase in Bitcoin prices.
Wall Street expects Riot Blockchain to increase sales by 1,730% to $221 million in 2021 and by 115% to $475 million in 2022. It will allow the company to report an adjusted earnings of $1.82 per share, compared to a loss of $0.3 per share in 2020.
The bull case for Bitfarms
Valued at a market cap of $848 million, Bitfarms is a blockchain infrastructure company that mines cryptocurrency coins and tokens. It owns and operates server farms that consist of a network of computers and validates transactions on the Bitcoin blockchain.
The company secured close to 60,000 new generation miners, grew operational capacity by 53% and increased hashrate by 228% in 2021. Bitfarms continues to expand its footprint at the global level and mined 3,452 Bitcoins last year. It mined 363 BTC tokens in December which was 82% higher than the 199 BTC tokens mined in January 202.
Now, Bitfarms aims to double its operational farms, triple its operating capacity and quadruple installed hashrate in 2022.
Analysts expect Bitfarms to increase revenue from $46.5 million in 2020 to $311 million in 2022. Comparatively, its profit margin is forecast to improve from a loss of $0.26 in 2020 to earnings of $0.51 in 2022.
Riot Blockchain is valued at a forward price to sales multiple of 5.05x and a price to earnings ratio of 11x. Comparatively, Bitfarms is trading at a price to sales multiple of less than 3x and a price to earnings multiple of 11x.
Both companies are similarly valued but I believe RIOT is currently the better investment. That’s because RIOT has forecast that it expects to increase its hashrate to 8.6 EH/s in 2022, while BITF is forecasting an increase of 8 EH/s by the end of 2022.
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RIOT shares were trading at $20.22 per share on Friday morning, down $0.26 (-1.27%). Year-to-date, RIOT has declined -9.45%, versus a -1.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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