3 reasons why RIOT stock is good investment despite 80% drop from ATH

YEREVAN (CoinChapter.com) – Bitcoin (BTC) mining company Riot Blockchain’s RIOT stock price stood near $15,0 in Wednesday’s European session, over 80% lower than its all-time high of $80 on Feb. 17, 2021. However, there are reasons to consider RIOT stock as an investment opportunity in 2022.

#1 Regulatory tailwind for Bitcoin, and wider adoption

In detail, as Riot Blockchain gets its revenue from Bitcoin mining, its profits depend on the spot BTC rate. As CoinChapter previously reported, other mining companies like Marathon Digital exhibited the same patterns. RIOT is also susceptible to the crypto market’s volatility on the flip side. Hence it followed suit when the alpha crypto lost over 40% of its price since Nov. 2021.

Conversely, when Bitcoin gains value, so do the mining companies’ stock prices. For example, in Q4 2020, when Bitcoin gained over 185%, RIOT followed with a 602% rally. Thus, the crypto-favorable news from U.S. President Joe Biden’s latest executive order rang bullish for RIOT as well.

In detail, the policymakers seem to be allowing for “responsible innovation” to continue. The governmental policy will let cryptocurrencies survive and grow even in a regulated environment.

Also read: Riot Blockchain stock drops after reclaiming multi-month resistance — what's next?

Moreover, the cryptocurrency market saw steadily growing adoption over the previous two years. According to the digital asset trading platform Crypto.com, the number of digital asset owners will touch 300 million by the end of 2021. The research also estimated that the indicated number would triple by the end of 2022, reaching 1 billion.

Thus, a broader landscape for mining companies could be granted. Furthermore, Riot Blockchain’s hashrate rose, making the RIOT stock more attractive for tech investors.

#2 Mining capacity growth expectations

Hashrate growth is another catalyst for the stock price uptrend. In detail, hashrate measures the computational power per second used when mining. More simply, it is the mining speed, measured in units of hash/second. A higher hashrate means more efficient mining, which translates to more profit for the mining company and its stock.

Riot recently released an update for February 2022, reporting mining 436 Bitcoins for the month. Further, the company’s hashrate capacity increased to 3.9EH/s, a 50% growth from 2.6EH/s in Q3 2021. Also, the statistics showed an inflow of miners in the last few months.

Furthermore, Riot’s January report stated that the company expected to achieve a hashrate of 12.8EH/s by the end of 2022. If the forecast pans out, the largest miner in the U.S. could achieve 1,430 BTC a month by Jan. 2023, sealing a 3x increase.

Also read: Is Marathon Digital, a Bitcoin mining stock, a better buy than MicroStrategy? Let's see

If Bitcoin trades near $45,000 in January 2023, Riot’s monthly revenue potential could stand at $64.4 million, meaning an annualized revenue potential of $770 million. Moreover, if the company successfully raises its hashrate, Riot’s crypto holdings will subsequently swell.

#3 “Healthy” EBITDA margin

In detail, the EBITDA margin is a measure of a company’s operating profit as a percentage of its revenue. The acronym stands for earnings before interest, taxes, depreciation, and amortization. Knowing the EBITDA margin allows for comparing one company’s performance to others in its industry.

In Q3 2021, Riot reported a 2,532% growth in revenue to $64.8 million. In addition, the company reported an adjusted EBITDA of $37.6 million for the same period. The numbers imply an adjusted EBITDA margin of 58%.

Considering the mentioned EBITDA margin, Riot could deliver an adjusted EBITDA of $450 million for 2023. Additionally, the company reported $57.9 million in cash and equivalents as of September 2021 and had $102 million worth of digital assets.

Also read: Riot Blockchain stock could soar in Q4; here's why.

Moreover, in September 2021, the company launched an at-the-market offering for $600 million. In detail, an at-the-market offering is a type of stock offering that publicly traded companies utilize to raise capital over time.

Therefore, the company gained financial flexibility to expand through 2022. Thus, all the reasons listed above paint a bullish picture for RIOT and its potential investors.