At the onset of the COVID-19 pandemic in March, the most popular cryptocurrency, Bitcoin, traded below $4,000. In addition to the public health crisis, global economic uncertainty, aggressive fiscal policy and loose monetary policy by most central banks, and a weak U.S. dollar have driven massive inflows into crypto assets. Consequently, Bitcoin rallied close to the $42,000 mark earlier this month.
This incredible bull-run has enhanced the appeal of cryptocurrencies to retail and institutional investors. Though the overheated market experienced a slump recently, Bitcoin is increasingly being perceived as a hedge against inflation and accepted as a mainstream digital currency and federal reserve currency. As a result, it bounced back quickly.
Riot Blockchain Inc. (RIOT) and HIVE Blockchain Technologies Ltd. (HVBTF), two of the prominent players in the digital and cryptocurrency industry, have been the direct beneficiaries of this bull run. Both companies have been thriving because investors are now considering cryptocurrencies as part of their asset allocation to hedge against inflation and store value. Previously, this was the near-exclusive domain of gold and other precious metals.
Both stocks delivered significant returns over the past year. While RIOT returned 1,282.1% over this period, HVBFT gained 2,117%. In terms of past three months’ performance, HVBTF is a clear winner with 433.7% returns versus RIOT’s 386.2%. But let us find out which of these stocks is a better pick now.
Business Structure and Latest Movements
RIOT focuses on building, supporting, and operating the Blockchain technologies ecosystem and manufacturing in-vitro substances. Its portfolio includes Verady, Coinsquare, and Tesspay, which are involved in digital currency mining operations that utilize specialized computers to generate digital currencies, primarily bitcoin. RIOT’s currently deployed hardware fleet consists of 6,040 next generation Bitmain Antminers with a hash rate capacity of 456 PH/s.
RIOT is aggressively expanding its operation with the purchase of an additional 1,500 next generation S19 Pro and S19j Pro Antminers from BitmainTech in December. The deployment is expected to increase RIOT’s bitcoin mining hash rate capacity by 65%.
HVBTF operates as a cryptocurrency mining company that owns state-of-the-art green energy-powered data center facilities in Canada, Sweden and Iceland. The company produces newly minted digital currencies like Bitcoin and Ethereum on cloud platforms.
HVBTF recently achieved its previously announced 2021 ASIC capacity goal of 1,000 Petahash per second (PH/s) with the purchase of 6,400 Canaan AvalonMiner 1246 next generation miners with an aggregate operating hash power of 576 PH/s. In addition, , the company purchased 4,180 MicroBT WhatsMiner M31S+ next generation miners this month with an aggregate operating hash power of 334 Petahash per second (PH/s) as it continues to expand its bitcoin mining operations.
Recent Financial Results
In the third quarter ended September 30, 2020, RIOT’s mining revenue surged 41.5% year-over-year to $2.4 million. The company has produced 730 newly minted bitcoins (BTC) year-to-date, despite experiencing downtime in the previous quarter. RIOT reported a quarterly loss of $0.04 per share, representing a significant improvement from its quarter-ago loss of $0.31 per share.
RIOT received and deployed 3,040 next-generation Bitmain S19 and S19 Pro Antminers during the July through November 2020 period, increasing the company's total hashrate capacity to 566 PH/s. RIOT also contracted for 15,600 next-generation Bitmain S19 Pro Antminers in the third quarter of 2020.
In HVBTF’s fiscal second quarter ended September 30, 2020, the company’s revenue from digital currency mining was $13 million, an 8.2% increase from the same quarter last year. It generated record cash flow of $10.6 million as it produced a record number of Ethereum coins. HVBTF’s EPS came in at $0.03, compared to the year-ago loss of $0.04 per share.
Here RIOT is in an advantageous position.
Past and Expected Financial Performance
RIOT’s revenue and total assets grew at a CAGR of 335.6% and 53.4%, respectively, over the past three years.
In comparison, , HVBTF’s revenue and total assets grew at a CAGR of 445% and 46.8%, respectively, over the past three years.
However, analysts expect RIOT’s revenue to increase 412.5% in the current year. The company’s EPS is expected to grow 103.8% in the current year and at a rate of 20% per annum over the next five years.
RIOT has an edge over HVBTF here as well.
Profitability
HVBTF’s trailing-12-month revenue is nearly 3.5 times RIOT’s. But RIOT is more profitable with a gross profit margin of 74.6% versus HVBTF’s 62.6%.
Valuation
In terms of trailing-12-month P/S, RIOT is currently trading at 80.24x, 245.6% more expensive than HVBTF, which is currently trading at 23.22x. However, RIOT is less expensive in terms of trailing-12-month P/B (15.61x versus 18.56x).
Though RIOT looks much more expensive than HVBTF, it is worth paying this premium considering RIOT’s significantly higher earnings growth potential.
POWR Ratings
Both RIOT and HVBTF are rated “Buy” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for RIOT and HVBTF:
RIOT has an “A” for Trade Grade, a “C” for Buy & Hold Grade and Industry Rank, and a “D” for Peer Grade. In the 83-stock Technology – Services industry, it is ranked #34.
HVBTF has an “A” for Trade Grade, and a “C” for Buy & Hold Grade, Peer Grade and Industry Rank. It is ranked #69 in the 259-stock Financial Services (Enterprise) industry.
The Winner
Experts believe that crypto will have the same impact on money that the Internet has had on information. Because the global economy is adopting digital transactions relatively quickly , the demand for bitcoin is expected to hit new highs soon. Hence, both RIOT and HVBTF are good long-term investments considering their continued business growth and wider cryptocurrency adoption. However, RIOT appears to be a better buy based on the factors discussed here.
According to Markets and Markets, the cryptocurrency market is projected to grow at a CAGR of 6.18% to $1.40 billion by 2024. The growth of Innovative technologies such as Decentralized Finance (DeFi), blockchain, and quantum computing is shaping a new trajectory for the future of bitcoin mining.
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RIOT shares were trading at $20.97 per share on Friday afternoon, up $1.62 (+8.37%). Year-to-date, RIOT has gained 23.43%, versus a 2.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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