RIOT Stock Is Worth 50% More Based on Its $600 Million Capital Raise

Riot Blockchain (NASDAQ:RIOT) just released a very positive third-quarter report. In addition, the Bitcoin (CCC:BTC-USD) miner just completed a $600 million equity capital raise. As a result, RIOT stock is looking like a good bet going forward, especially if Bitcoin’s price continues to rise.

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On Nov. 15, Riot Blockchain reported its revenue rose to $64.8 million, up from $2.5 million a year ago. More importantly, its revenue last quarter (Q2) was just $34.348 million. So, it almost doubled revenue compared to the prior quarter with an 88.7% gain.

This is likely to bode well for RIOT stock. In the past six months, it has slowly ticked up. For example, the stock bottomed out on May 13 this year at $22.23. As of Friday, Nov. 19, it had climbed to $36.18 per share. That represents a gain of 63% from its trough. At this price, it had a market value of $4.2 billion.

Where Things Stand With Riot Blockchain

Riot Blockchain has experienced good growth and profits. For example, its mining revenue margin as of Q3 was 76% of sales. This was higher than its prior quarter mining revenue margin of 70% for the quarter ending June 30.

In other words, the company’s ongoing Bitcoin mining operations are now more efficient with a five percentage point margin gain over Q2. Part of the reason could be that it mined significantly more Bitcoin this quarter. For example, in Q3 it produced 1,292 BTC versus 675 last quarter. That’s 91% more on a sequential basis.

This bodes well for RIOT stock. The market seems to want to see more Bitcoins produced by miners. Now that Riot Blockchain has $600 million in cash, it can use this to purchase more equipment and up its mining rate.

Although Riot Blockchain is not yet profitable, it seems to be on a glide path for this. It reported a net loss of $15.3 million for Q3. However, with its newer Bitcoin mining machines, which are more efficient, the company should be able to move to net profits soon.

However, on an adjusted EBITDA basis, it made $37.6 million. Riot Blockchain did not report its Q2 adjusted EBITDA figures.

Where Analysts Stand on Riot Blockchain

Analysts now estimate $281.3 million in revenue this year and 120% higher revenue next year at $479.6 million. This is from Seeking Alpha’s survey of four analysts for 2021 and five analysts for 2022.

Given its market cap of $4.2 billion, that puts it on a price-to-sales (P/S) metric of just 8.76 times 2022 revenue. This is comparable or slightly higher than Marathon Digital Holdings (NASDAQ:MARA). It trades for 30 times 2021 revenue and 7.5 times 2022 forecast sales.

Other Bitcoin mining stocks have similar valuations. Hut8 Mining (NASDAQ:HUT) is at 15.5 times 2021 revenue and 6.4 times 2022. In addition, Bit Digital (NASDAQ:BTBT) trades at a P/S multiple of 5.7 times for 2021 and 6.9 times for 2022.

Even though RIOT stock is at the upper end of these valuations, at least for 2022, it is highly likely that analyst estimates are too low. This is because analysts may still need to include the $600 million in new capital for more efficient miners. That could raise its revenue for 2022 quite substantially, lowering the P/S metric.

What to Do With RIOT Stock

The fact is RIOT stock will trade in sync with the price of Bitcoin. If it continues to rise over time, instead of just treading water, then RIOT stock will move substantially higher.

However, keep in mind that Riot will keep growing as long as it mines more Bitcoin revenue. That as well will help push RIOT stock higher.

The average target price of five analysts surveyed by Seeking Alpha for RIOT stock is $54.40. That represents a potential gain of 50.4% over Friday’s price. Expect to see the stock continue to move higher over the coming year as a result.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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