The stock market has been under pressure due to macroeconomic uncertainty and recession fears. The consumer price index (CPI) rose 8.3% year-over-year in August, making the case stronger for the Fed to maintain its hawkish monetary policy stance.

The crypto space has been under pressure since the beginning of the year, with the top two cryptocurrencies, bitcoin and Ethereum falling more than 55% year-to-date. Many experts believe that we are amid a ‘crypto winter.’

Crypto mining stock Riot Blockchain, Inc. (RIOT - Get Rating) has gained 54.6% in price over the past three months but declined 66.1% year-to-date and 73.8% over the past year to close the last trading session at $7.38. It is trading 83.6% below its 52-week high of $46.28, which it hit on November 15, 2021.

RIOT is involved in cryptocurrency mining and the overall blockchain system through various investments. The company has deployed approximately 8,000 application-specific integrated circuit miners at its cryptocurrency mining facility in Oklahoma. In addition, its subsidiary Tess Inc. seeks to develop a blockchain-based escrow service for wholesale telecom carriers.

RIOT missed its consensus EPS and revenue estimates in the last reported quarter. The company reported a loss compared to a consensus EPS expectation of $0.02. Its revenue came 1.7% below analyst estimates of $74.24 million. The results were attributed to the company’s non-cash impairment charges, which are directly connected to its Bitcoin holdings.

According to a KPMG report, investments in crypto companies have fallen to $14.20 billion during the first half of this year. This is more than half of the $32.1 billion recorded during the year-ago period.

Analysts expect crypto to continue declining for the rest of the year and are expected to shrink even further by the start of next year.

Here’s what could influence RIOT’s performance in the upcoming months:

Disappointing Financials

For the fiscal second quarter that ended June 30, 2022, RIOT’s net loss came in at $366.33 million, compared to a net income of $19.33 million. Its adjusted EBITDA loss came in at $65.17 million, compared to an adjusted EBITDA of $2.38 million. The company’s adjusted loss per share came in at $0.50, compared to an adjusted EPS of $0.03.

Mixed Analyst Estimates

RIOT’s EPS for fiscal 2022 is expected to remain negative. Its EPS for fiscal 2023 is expected to increase 132.8% year-over-year to $0.81. Its revenue for fiscal 2022 and 2023 is expected to increase 42.1% and 74.5% year-over-year to $303.08 million and $528.96 million. It failed to surpass consensus EPS estimates in three of the trailing four quarters.

Weak Profitability

RIOT’s 49.59% trailing-12-month gross profit margin is 1.5% lower than the 50.35% industry average. Likewise, its trailing-12-month net income margin is negative compared to the 4.28% industry average. Also, its trailing-12-month EBITDA margin is negative compared to the 13.05% industry average.

Stretched Valuation

In terms of forward EV/S, RIOT’s 3.03x is 11.8% higher than the 2.71x industry average. Likewise, its 3.85x forward P/S is 46.8% higher than the 2.63x industry average. Its 33.67x EV/EBITDA is 167.4% higher than the 12.59x industry average.

POWR Ratings Reflect Bleak Prospects

RIOT has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. RIOT has a D grade for Value, in sync with its stretched valuation.

It has an F grade for Quality, consistent with its weak profitability. Also, its 4.57 beta justifies its F grade for Stability.

RIOT is ranked #78 out of 81 stocks in the D-rated Technology- Services industry. Click here to access RIOT’s ratings for Growth, Momentum, and Sentiment.

Bottom Line

RIOT’s fortunes are linked to cryptocurrencies. With many experts predicting a long crypto bear market, the company’s earnings and revenue could remain under pressure. Given its poor financials, stretched valuation, and weak profitability, it could be wise to avoid the stock now.

How Does Riot Blockchain, Inc. (RIOT) Stack Up Against Its Peers?

RIOT has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Technology – Services stocks with an A (Strong Buy) or B (Buy) rating, such as Jabil Inc. (JBL - Get Rating), Celestica Inc. (CLS - Get Rating), and Leidos Holdings, Inc. (LDOS - Get Rating).

RIOT shares rose $0.06 (+0.90%) in after-hours trading Friday. Year-to-date, RIOT has declined -70.22%, versus a -18.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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