Bitfarms Ltd. (BITF) is a vertically integrated Bitcoin mining and blockchain infrastructure company based in Québec, Canada. In the wake of a Chinese regulatory crackdown on crypto mining inn China, BITF has been capitalizing on lower bitcoin mining costs and demand for new hosting. The company mined 1,748 bitcoins in 2021 (as of July 31), the highest number versus publicly traded industry peers in North America.

BITF’s shares have gained 1,712.4% in price over the past year and 236.3% year-to-date, owing to strong retail investor interest in  the stock. Frequently mentioned in the popular Reddit forum r/wallstreetbets, the company is expected to emerge as a leading Bitcoin mining company as most mining operations gradually shift from China to North America.

However, Bitcoin is rapidly losing its luster as investors switch to more efficient and cost-effective alternatives. Recently, renowned institutional investor Mark Cuban and tech mogul Elon Musk stated that Dogecoin is the strongest cryptocurrency as a medium of exchange. Amid such developments, BITF’s expertise in Bitcoin mining and significant Bitcoin reserves might become redundant.

Click here  to check out our Cryptocurrency Industry Report for 2021

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

Crypto Industry Outlook

Cryptocurrencies have turned bullish once again, with Bitcoin prices crossing the $47,000 mark yesterday. In addition, Bitcoin’s market capitalization crossed the $2 trillion mark yesterday for the first time since mid-May, indicating improved investor sentiment.

However, the Chinese crackdown on the crypto mining industry might lead to severe short-term headwinds because 65% to 75% of the total bitcoin mining in the world takes place in China. Furthermore,  the high energy consumption during currency mining has been a point of contention  amid the rising concerns regarding climate change.

People have gradually reduced their exposure to cryptocurrencies by redeeming their holdings for six consecutive weeks, ending August 15. This marks the longest streak of outflows in the cryptocurrency space since January 2018. Approximately $22.10 million of cryptocurrency was redeemed last week.

Also, industry experts are currently anticipating a pullback. Marcus Sotiriou, a trader at GlobalBlock, said, “Even though the trend has flipped bullish, a pullback is to be expected before continuation. This is because there has been declining volume with an increase in price.”

Bleak Financials

Despite having a market capitalization of $1.13 billion, BITF’s trailing-12-month revenue stands at $53.92 million. Its $20.89 million gross profit translates to a 38.74% margin. However, the company’s gross profit margin is 20.4% lower than the 48.68% industry average. BITF’s net loss came in at $21.47 million. The company’s ROE and ROA are negative 25.44% and 13.09%, respectively.

Though BITF’s trailing-12-month revenues grew 41.9% year-over-year, its loss per share widened by 1,130.7% over this period.

Weak Balance Sheet

Despite having a $53.03 million cash balance, BITF has $15.91 million in  total debt. Though negative net debt is generally a positive indicator for a company, BITF has been bearing  an interest burden on its outstanding debt despite having sufficient cash balance to redeem it at least partially. Moreover, the company’s negative cash flows raise concerns regarding its ability to meet its outstanding debt obligations. BITF’s net operating cash flow and levered free cash flow are negative $2.65 million and $46.63 million, respectively.

Stretched Valuation

In terms of forward EV/Sales, BITF is currently trading at 11.14x, which is 182.8% higher than the 3.94x industry average. Its forward EV/EBIT and Price/Sales multiples of 25.43 and 10.89, respectively, are significantly higher than the 20.34 and 3.90 industry averages.

The stock’s 6.57 trailing-12-month Price/Book ratio is 37.8% higher than the 4.77 industry average.

Unfavorable POWR Ratings

BITF has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

BITF has a D grade for Stability and an F for Quality. The stock’s relatively high 2.05 beta is in sync with the Stability grade. Moreover, the company’s negative return on sales and ROE justifies the Quality grade.

Of the 104 stocks in the D-rated Financial Services (Enterprise) industry, BITF is ranked #101.

Beyond what is stated above, we have rated BITF for Value, Growth, Momentum, and Sentiment. View all BITF ratings here.

Bottom Line

Though BITF is a leading bitcoin mining company, it has  yet to deliver adequate ROI to shareholders. Moreover, given the faltering popularity of bitcoin against a volatile industry backdrop, we think BITF is best avoided now.

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

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

Click here  to check out our Cryptocurrency Industry Report for 2021

BITF shares were trading at $5.52 per share on Tuesday afternoon, down $0.87 (-13.62%). Year-to-date, BITF has gained 39.39%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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