After the collapse of Silicon Valley Bank and Signature Bank, all major cryptocurrencies have risen from the lows as investors turned to digital assets in hopes that digital currency could replace the traditional banking system and its flaws.
However, the cryptocurrency market's ongoing volatility could pressure blockchain stocks. Therefore, it could be wise to avoid fundamentally weak blockchain stocks Block, Inc. (SQ), Riot Platforms, Inc. (RIOT), and HIVE Blockchain Technologies Ltd. (HIVE).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the crypto space and why it could be prudent to avoid these blockchain stocks.
The cryptocurrency industry has faced significant headwinds since last year. Several cryptocurrency exchanges went bankrupt, and prices of all major cryptocurrencies plummeted, causing huge losses to investors. In March, the crypto industry’s downturn led to the shutdown of Silvergate Capital Bank.
Blockchain plays a vital role in the functioning of the cryptocurrency market. Blockchain technology is the best option for building a secure and effective digital currency system because of its decentralized and transparent nature. Several companies either specialize in blockchain technology, have adopted blockchain into their operations, or directly profit from using cryptocurrencies.
However, due to the high volatility of the cryptocurrency market, investing in the featured blockchain names could be highly risky. The cryptocurrency market is banking on the Fed’s statement that it is looking to pause interest rate hikes after announcing its 10th hike of 25 basis points last week.
However, the Fed’s decision would depend on the spate of macroeconomic data due for release. Any increase in inflation would prompt the Fed to continue with its rate hikes to achieve its long-term inflation target. This could harm the prospects of the cryptocurrency market.
Moreover, the uncertainty around cryptocurrency regulations in the United States could be a headwind for the industry.
Let’s discuss the fundamentals of the featured stocks.
Block, Inc. (SQ)
SQ is focused on creating ecosystems for distinct customer audiences. The company operates through two segments: Square and Cash App. The Square segment enables businesses to accept card payments, which provides products and services to help its sellers start, run, and grow their businesses. The Cash App segment provides an ecosystem of financial products and services to help customers manage their money.
SQ’s 34.94% trailing-12-month gross profit margin is 41.5% lower than the 59.75% industry average. Likewise, its trailing-12-month EBIT margin is negative 2.28% compared to the 21.44% industry average. Furthermore, the stock’s 1.40% trailing-12-month levered FCF margin is 91.2% lower than the industry average of 15.99%.
Its total operating expenses for the first quarter ended March 31, 2023, increased 13.4% year-over-year to $1.72 billion. The company’s long-term debt rose marginally to $4.11 billion, compared to $4.10 billion for the fiscal year ended December 31, 2022.
In addition, its total current liabilities increased 3.2% to $8.70 billion, compared to $8.43 billion for the fiscal year ended December 31, 2022. Also, its bitcoin costs rose 25.2% year-over-year to $2.11 billion.
Over the past year, the stock has declined 38.9% to close the last trading session at $58.80.
SQ’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked #75 out of 97 stocks in the F-rated Financial Services (Enterprise) industry. It has a D grade for Stability, Sentiment, and Quality. Click here to see the other ratings of SQ for Growth, Value, and Momentum.
Riot Platforms, Inc. (RIOT)
RIOT operates as a Bitcoin mining company. It operates through Bitcoin Mining, Data Center Hosting, and Engineering segments. The company also provides co-location services for institutional-scale bitcoin mining companies and critical infrastructure workforce for institutional-scale miners to deploy and operate their miners.
RIOT’s 25.26% trailing-12-month gross profit margin is 48.9% lower than the 49.43% industry average. Likewise, its trailing-12-month EBITDA margin is negative 57.62% compared to the 9.30% industry average. Furthermore, the stock’s negative 196.61% trailing-12-month net income margin compares to the industry average of 2.61%.
For the fiscal year ended December 31, 2022, RIOT’s adjusted EBITDA loss came in at $67.19 million, compared to an adjusted EBITDA of $74.91 million in the prior-year period. Its net loss widened significantly to $509.55 million. The company’s adjusted loss per share came in at $0.47, compared to an adjusted EPS of $0.79 in the year-ago period.
For the quarter ended March 31, 2023, RIOT’s EPS is expected to be negative. Its revenue for the same quarter is expected to decline 4% year-over-year to $76.63 million. It failed to surpass the consensus EPS estimate in three of the trailing four quarters. Over the past year, the stock has gained 10.5% to close the last trading session at $10.49.
RIOT’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Growth, Value, Stability, and Quality and a D for Sentiment. Within the Technology – Services industry, it is ranked last out of 79 stocks. To see RIOT’s rating for Momentum, click here.
HIVE Blockchain Technologies Ltd. (HIVE)
Headquartered in Vancouver, Canada, HIVE operates as a cryptocurrency mining company in Canada, Sweden, and Iceland. It engages in the mining and sale of digital currencies, including Ethereum, Ethereum Classic, and Bitcoin.
HIVE’s 0.41x trailing-12-month asset turnover ratio is 33.9% lower than the 0.62x industry average. Likewise, its trailing-12-month EBITDA margin is negative 25.54% compared to the 9.30% industry average. Furthermore, the stock’s negative 99.29% trailing-12-month EBIT margin compares to the industry average of 4.66%.
For the third quarter ended December 31, 2022, HIVE’s net loss came in at $90.01 million, compared to a net income of $51.19 million a year ago. Its revenue from digital currency mining declined 79% year-over-year to $14.31 million. Its loss per share came in at $1.09, compared to an EPS of $0.62 in the prior-year quarter.
Analysts expect HIVE’s EPS for the quarter ended March 31, 2023, to remain negative. Its revenue for the same quarter is expected to decline 66.5% year-over-year to $17.30 million. It failed to surpass the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 56.1% to close the last trading session at $3.07.
HIVE’s POWR Ratings reflect this weak outlook. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It is ranked #76 in the same industry. It has an F grade for Value and Stability and a D for Quality. Click here to see the other ratings of HIVE for Growth, Momentum, and Sentiment.
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SQ shares fell $0.50 (-0.85%) in premarket trading Tuesday. Year-to-date, SQ has declined -7.22%, versus a 7.99% 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.
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