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Canada-based blockchain infrastructure company Bitfarms Ltd. ( BITF ) mines for cryptocurrency coins and tokens in North America. The company secured nearly 60,000 new-generation miners in 2021. BITF expanded its international footprint significantly over the year, growing its operational capacity by 53%, while its hashrate increased 228%. BITF mined 363 new BTC during December 2021, marking a better than 82% increase from the beginning of the year and bringing its 2021 total to 3,452. The company expects this momentum to continue in 2022.

BITF shares gained 165.8% in price over the past year and 28.2% over the past six months to close yesterday’s trading session at $5.05. The company secured investors’ attention due to the growing crypto market, which was valued at $2 trillion at the end of the last year, with bitcoin up nearly 70% since the beginning of 2021. However, the stock is currently trading below its 50-day and 200-day moving averages, indicating a downtrend. The stock has slumped 34% in price over the past month and 12.9% over the past five days.

BIFT’s correlation with bitcoin’s movements and the broader crypto market makes it highly volatile. It has a 2.03 beta. Furthermore, heightened regulatory scrutiny and intense price fluctuations have dampened bitcoin’s prospects lately . Indeed, some experts have warned that the crypto market could experience a sharp decline in the coming months. Bitcoin is currently trading below $50,000, and analysts expect it could tank to as low as $10,000 in 2022. “Without question, Bitcoin’s price chart appears to track many historical asset bubbles and busts and is carrying a ‘this time it’s different’ narrative just like other bubbles,” argued Todd Lowenstein, chief equity strategist of Union Bank’s private banking arm. In addition, the Federal Reserve’s more hawkish policies and governments’ increasing interest in regulating the crypto space could lead to continued volatility.

Here is what could shape BITF’s performance in the near term:

Mixed Profitability

BITF’s 61.77% gross profit margin is 25% higher than the 49.42% industry average. Also, its 52.14 % EBITDA margin is 261.6% higher than the 14.42% industry average.

However, BITF’s ROE and ROTC of 4.70% and 2.20%, respectively, are 43.3% and 39.3% lower than the industry averages. And its 5.84% net income margin is 8.8% lower than the industry median.

Solid Third-Quarter Earnings Report

BITF’s revenues increased 559% year-over-year to $44.77 million in its fiscal third quarter, ended Sept. 30. Its operating income came in at $34.09 million, indicating a substantial increase from its negative year-ago value. Its net income grew 598% year-over-year to $23.73 million. And the company’s EPS increased 316.7% year-over-year to $0.13.

Mixed Valuation

In terms of trailing-12-months P/E, BITF is currently trading at 94.06x, which is 195% higher than the 31.88x industry average. Also, its 5.52 forward EV/Sales ratio is 30.6% higher than the 4.22 industry average.

However, BITF’s trailing-12-month Price/Book is 32.9% lower than the 4.65x industry average, and its forward EV/EBIT is 47.9% lower than the 21.10x industry average.

POWR Ratings Reflect Uncertain Prospects

BITF has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, which is consistent with its mixed valuation.

BITF has an F grade for Stability, in sync with its high beta.

Of 122 stocks in the D-rated Financial Services (Enterprise) industry, BITF is ranked #80.

Beyond what I have stated above, you can also view BITF’s grades for Quality, Growth, Momentum, and Sentiment here .

View the top-rated stocks in the Financial Services (Enterprise) industry here .

Bottom Line

Analysts expect volatility in the crypto market, with bitcoin declining significantly, wiping away its past year gains. Furthermore, government regulations in the crypto space are expected to be more stringent this year, potentially adding to the market’s volatility. BITF’s performance has been closely related to the crypto movements, making it a risky bet. So, considering the stock’s mixed valuation, we think it could be wise to wait for the broader crypto market to stabilize before investing in the stock.

How Does Bitfarms Ltd. (BITF) Stack Up Against its Peers?

While BITF has an overall POWR Rating of C, one might want to consider looking at its industry peers, Forrester Research, Inc. ( FORR ), Donnelley Financial Solutions, Inc. ( DFIN ), and Santander Consumer USA Holdings Inc. ( SC ), which have an A (Strong Buy) rating.

Note that DFIN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here .

BITF shares were trading at $5.27 per share on Tuesday morning, up $0.22 (+4.36%). Year-to-date, BITF has gained 4.36%, versus a 0.96% rise in the benchmark SP 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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