Key Takeaways:
- Mining company Bitfarms' stock BITF traded 80% lower than its record price in Nov. 2021.
- The stock's correlation with Bitcoin could dampen the investors' expectations.
- Strong EBITDA hints it might be time to buy the dip.
YEREVAN (CoinChapter.com) – BITF, the stock of Bitcoin mining company Bitfarms, declined 80% from its record high of $9.3 and traded at $1.82 per share on May 23. Some experts believe it might be time to buy the dip. However, it is important to weigh the pros and cons carefully. Is it time to call it quits or buy the dip after all? Let’s find out.
Bitcoin might drag BITF down.
Before noting the company’s bullish prospects, it is crucial to address the risks. As a Bitcoin mining company, Bitfarm’s stock price traded in unison with the flagship cryptocurrency. Thus, the correlation with Bitcoin elevated BITF price in Q4 2021. However, the flip side of the said correlation is the stock’s susceptibility to BTC’s short-term fluctuations, which can make and break investments.
Additionally, Bitfarms had a $100M line of credit backed by Bitcoin as of Q1 2022, which charges roughly a 10.75% interest rate. Thus, if the BTC price declines further, the mining company might need to pledge additional Bitcoin, increasing the risks.
However, the company’s Q1 results testify that Bitfarms has made a profit, making BITF an attractive stock to invest in.
Bitfarms in profit amid the red market
Bitfarms turned a profit of $5 million in Q1, despite the collapsing Bitcoin prices and the bearish sentiment across the broader markets. According to the latest earnings report, the company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a whopping 64% increase year-over-year.
Financial expert Brett Rodway commented on Birfarms’ “strong operations,” noting the importance of adjusted EBITDA results.
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The adjusted EBITDA gives a clearer view of the underlying operation. It removes the impact of the standard accounting depreciation and interest, eliminates the effects of share compensation and financing expenses, and perhaps most importantly, incorporates unrealized gains and losses
asserted the specialist.
Additionally, Bitfarms’ equity-driven financing strategy might pay off in the long haul.
“Equity side of financing” might lift BITF
Bitfarms implemented the at-the-market (ATM) offering program in Aug. 2021. In short, publicly traded companies utilize the ATM stock offering mechanism to raise capital over time. Bitfarms issued over 30 million shares since, at an average price of $5.77 each, significantly higher than the current price.
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Furthermore, Bitfarms had over 200 million shares outstanding at the reporting date, making ATM offering responsible for 15% of the total shares issued.
BITF price has fallen below the average issue price. Thus, Rodway called the situation “fundamentally beneficial” to shareholders who have held through the program.
Meanwhile, BITF’s book value is $2.28 a share. In detail, the book value is the amount of money that shareholders would get if the company were liquidated and paid off all of its liabilities.
Thus, the price-to-book ratio would stand at 0.78, meaning the accounting value of the underlying exceeds the equity valuation. Once a company’s market value falls below its book value, it is commonly seen as an investment opportunity. Once more investors pour in, BITF might pick up the pace.
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Investing during a bear market is risky enough. However, investing in Bitcoin mining stocks is also a challenging task, considering the correlation with the alpha crypto’s price fluctuations. Some experts view Bitfarms (BITF) as a high risk/ high reward investment, given the stock’s 80% dip from the record high.
