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Is Riot Platforms (RIOT) Worth Buying After a Major Correction?
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Riot Platforms, Inc. (RIOT - Free Report) has seen its stock decline 19.7% year to date. This drop stands in stark contrast to the 21% rise in the industry it belongs to, as well as a 16.1% increase in the Zacks S&P 500 composite.
When compared to other cryptocurrency-centric stocks, RIOT's performance is notably poorer. Cipher Mining (CIFR - Free Report) has surged 64.1% and Marathon Digital (MARA - Free Report) has gained 8.8% over the same period.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Most cryptocurrency-centric stocks tend to be highly correlated with Bitcoin and other major cryptocurrencies. However, RIOT seems to have lost this correlation due to its operational inefficiencies and the heightened challenges it faces post-halving.
Let’s delve deeper.
Post-Halving Challenges and Financial Struggles
One of the primary reasons for RIOT's downward trajectory is the Bitcoin halving event, which has significantly increased operational challenges for miners, including Riot. The halving means that each ASIC miner now needs to work double as hard to mine the same amount of Bitcoin, but the anticipated price increase for Bitcoin has not occurred to balance this increased difficulty. Riot's Bitcoin production decreased 45% year over year in June 2024, highlighting the operational inefficiencies and increased challenges the company faces due to the halving.
The drop in production underscores the broader issues Riot is grappling with in its mining operations. In the first quarter of 2024, the company mined 1,364 Bitcoins, a 36% decrease year over year. This decline is primarily attributed to a significant increase in the Bitcoin network difficulty since January 2023. These operational challenges have put Riot in a risky financial position, potentially leading to further share dilution as the company seeks funding, which would result in additional losses for shareholders.
Estimates Moving South
Two estimates for 2024 moved south over the past 60 days versus no northward revisions. Over the same period, the Zacks Consensus Estimate for 2024 earnings has declined 23.7%. For 2025 as well, two estimates moved south over the past 60 days versus no northward revisions. The Zacks Consensus Estimate for 2025 earnings has declined more than 100% over the same time frame. This indicates a lack of confidence among analysts in the company's ability to improve its financial performance soon.
High Valuation Despite Significant Decline
Despite a significant decline in its stock value year to date, RIOT's current valuation appears high. The stock is trading at a forward 12-month Price/Earnings ratio of 71.32X, which is well above the industry average of 37.88X.
Image Source: Zacks Investment Research
The forward 12-month Price/Sales ratio for RIOT stands at 6.73X compared to the industry average of 6.36X. Moreover, the stock is currently trading above its 50-day moving average.
Image Source: Zacks Investment Research
Conclusion
RIOT has faced significant operational and financial challenges following the Bitcoin halving, leading to a substantial decline in its stock value. The company's financial outlook is bleak, with downward revisions in earnings estimates and high valuation ratios despite the stock's decline. Given these factors, investing in Riot Platforms appears less attractive compared to other investment opportunities in the cryptocurrency space, including direct investments in Bitcoin. The operational inefficiencies and potential for further share dilution add to the risks associated with investing in RIOT, making it a less favorable choice for investors seeking exposure to the cryptocurrency market.
Image: Bigstock
Is Riot Platforms (RIOT) Worth Buying After a Major Correction?
Riot Platforms, Inc. (RIOT - Free Report) has seen its stock decline 19.7% year to date. This drop stands in stark contrast to the 21% rise in the industry it belongs to, as well as a 16.1% increase in the Zacks S&P 500 composite.
When compared to other cryptocurrency-centric stocks, RIOT's performance is notably poorer. Cipher Mining (CIFR - Free Report) has surged 64.1% and Marathon Digital (MARA - Free Report) has gained 8.8% over the same period.
Year-to-Date Price Performance
Most cryptocurrency-centric stocks tend to be highly correlated with Bitcoin and other major cryptocurrencies. However, RIOT seems to have lost this correlation due to its operational inefficiencies and the heightened challenges it faces post-halving.
Let’s delve deeper.
Post-Halving Challenges and Financial Struggles
One of the primary reasons for RIOT's downward trajectory is the Bitcoin halving event, which has significantly increased operational challenges for miners, including Riot. The halving means that each ASIC miner now needs to work double as hard to mine the same amount of Bitcoin, but the anticipated price increase for Bitcoin has not occurred to balance this increased difficulty. Riot's Bitcoin production decreased 45% year over year in June 2024, highlighting the operational inefficiencies and increased challenges the company faces due to the halving.
The drop in production underscores the broader issues Riot is grappling with in its mining operations. In the first quarter of 2024, the company mined 1,364 Bitcoins, a 36% decrease year over year. This decline is primarily attributed to a significant increase in the Bitcoin network difficulty since January 2023. These operational challenges have put Riot in a risky financial position, potentially leading to further share dilution as the company seeks funding, which would result in additional losses for shareholders.
Estimates Moving South
Two estimates for 2024 moved south over the past 60 days versus no northward revisions. Over the same period, the Zacks Consensus Estimate for 2024 earnings has declined 23.7%. For 2025 as well, two estimates moved south over the past 60 days versus no northward revisions. The Zacks Consensus Estimate for 2025 earnings has declined more than 100% over the same time frame. This indicates a lack of confidence among analysts in the company's ability to improve its financial performance soon.
High Valuation Despite Significant Decline
Despite a significant decline in its stock value year to date, RIOT's current valuation appears high. The stock is trading at a forward 12-month Price/Earnings ratio of 71.32X, which is well above the industry average of 37.88X.
The forward 12-month Price/Sales ratio for RIOT stands at 6.73X compared to the industry average of 6.36X. Moreover, the stock is currently trading above its 50-day moving average.
Image Source: Zacks Investment Research
Conclusion
RIOT has faced significant operational and financial challenges following the Bitcoin halving, leading to a substantial decline in its stock value. The company's financial outlook is bleak, with downward revisions in earnings estimates and high valuation ratios despite the stock's decline. Given these factors, investing in Riot Platforms appears less attractive compared to other investment opportunities in the cryptocurrency space, including direct investments in Bitcoin. The operational inefficiencies and potential for further share dilution add to the risks associated with investing in RIOT, making it a less favorable choice for investors seeking exposure to the cryptocurrency market.
RIOT currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.