Is This Bitcoin Miner a Buy?

Over the last several years, Bitcoin mining has undergone a transformation in terms of both complexity and scale. Once done mostly by computer-savvy individuals in their own homes, mining of Bitcoin and other cryptocurrencies is now the domain of large businesses. Some of these businesses have even gone public, allowing investors to buy shares in Bitcoin mining operations.

 

One such public company is Greenidge Generation Holdings (NASDAQ:GREE). Here’s what you need to know about this Bitcoin mining stock and whether it should be included in your portfolio.

According to the company’s Q3 earnings report, GREE generated $35.8 million in total revenue for the quarter. This represented a massive gain of 484 percent compared to Q3 2020. Almost all of this revenue was generated by the company’s cryptocurrency mining activities. Per the report, this activity generated $31.2 million in revenue in Q3, compared to $14.1 million in Q2.

 

Despite obviously impressive revenue growth, the company did still post a net loss of $7.9 million in Q3. Costs were higher in the third quarter than usual, though, due to a reported $27.7 million in merger expenses. At the end of Q3, GREE held $53 million in cash, Bitcoin and short-term investments on its balance sheet. 

 

In total, GREE mined 729 Bitcoin in Q3. This was an impressive jump from Q2 when the company mined just 315. Rapid expansion of mining capabilities is currently a hallmark of Greenidge’s business model. Based on the number of coins mined in Q3, its efforts are paying off in the form of higher production.

 

At the time of this writing, only one analyst price forecast was available for Greenidge Generation Holdings. That forecast prices the company at $44.56 on the 12-month time horizon. If this forecast proves accurate, that would give the stock a remarkable upside of more than 365 percent against its current price of $9.53.

 

It’s very important, however, to be wary of such rosy predictions when only one analysis is available. Without a group of analyst forecasts from which to build a consensus, it’s difficult to develop a clear picture of where the stock could go over the coming year.

 

The one forecast available for GREE is clearly very bullish, but a more bearish outlook goes unrepresented.

 

The most obvious risk factor for Greenidge Generation Holdings comes directly from the volatility of Bitcoin. The digital asset has fallen dramatically in the early months of 2022 due to waning investor sentiment.

 

Historically, Bitcoin has gone through a rapid and often dramatic boom-and-bust cycle. Companies like GREE that generate most or all of their revenue from cryptocurrency mining are, of course, highly sensitive to the effects of these cycles.

 

GREE is also investing aggressively in new capacity. According to the Q3 report, the company has ordered 16,500 new miners to more than double its current number of mining units.

 

GREE has signed an agreement with a Texas-based developer for six planned data center sites. While this rapid expansion will obviously benefit the company if the price of Bitcoin rebounds, a cryptocurrency slump could significantly reduce the return on these investments.

 

GREE’s projected growth rate is also somewhat less than inspiring. The annual rate for the next five years is expected to be 10 percent. This rate is respectable enough but lackluster considering the high-growth industry that GREE is engaged in. That said, the company could outperform these expectations and deliver unexpected results.

 

A final risk factor to consider before buying GREE is the stock’s own volatility. The 52-week range for GREE stock runs from a low of $9.50 to a high of $60. A stock that fluctuates this much in the course of a single year is obviously high risk. Coupled with the inherent volatility of the cryptocurrency that GREE mines, it’s reasonable to call the stock a risky financial asset.

 

GREE has both its advantages and disadvantages. The company is currently sold off due to lower Bitcoin prices, meaning that its stock could be a bargain if Bitcoin rebounds. While it’s unwise to rely on the single ultra-bullish analyst price forecast, it’s far from impossible that the stock could rebound to $20 or more in the coming 12 months.

 

For investors interested in the cryptocurrency market, GREE offers direct exposure without the difficulty of buying and holding actual Bitcoin. Per the company’s reports, almost all of its revenues are derived directly from cryptocurrency mining. As a result, GREE is an almost pure play on the cryptocurrency market that anyone with a brokerage account can readily purchase.

 

With that said, GREE is also a high-risk stock. The large price fluctuations and the company’s aggressive investments create serious concerns about how GREE will perform as an investment going forward. While the company’s projected growth rate of 10 percent over the next five years isn’t terrible, it also may not be enough to offset these risks.

 

The decision to buy GREE largely hinges on whether you believe cryptocurrencies will continue to increase in value after the current price slump ends. If Bitcoin begins to climb again and tests or breaks its previous high record, expect GREE to advance along with it. If cryptocurrencies continue to languish, though, GREE could have an uphill battle ahead.

 

GREE is likely too risky for conservative investors seeking stable, reliable returns. If you don’t mind a fairly high level of risk and are comfortable with exposure to cryptocurrencies, however, GREE could make a decent addition to your portfolio.

 

On balance, history suggests that Bitcoin will eventually begin to rise again. If that happens, investors who buy Bitcoin mining stocks like GREE while they’re still low will likely see strong returns. So, while GREE certainly isn’t for everyone, it could have a place in specific portfolios.

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