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Riot Platforms (RIOT) Dips 46% YTD: How Should You Play the Stock?

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Riot Platforms, Inc. (RIOT - Free Report) has seen its stock decline 46% year to date. This drop starkly contrasts the 20% growth of the industry it belongs to and the 18% increase in the Zacks S&P 500 composite.

This decline aligns with the performance of other cryptocurrency-centric stocks like Cipher Mining (CIFR - Free Report) , which has declined 2% and Marathon Digital (MARA - Free Report) , which has dropped 25% over the same period.

 

Year-to-Date Price Performance

Zacks Investment ResearchImage 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 its heightened challenges post-halving.

The stock closed at $8.35 in its last trading session, close to its 52-week low of $7.25. Additionally, RIOT is trading below its 50-day moving average, indicating a bearish sentiment among investors.

 

RIOT Stock Trades Below 50-Day Average

Zacks Investment ResearchImage Source: Zacks Investment Research

Given the continued weakness in RIOT shares, investors might be tempted to buy the stock. But is this the right time to buy RIOT? Let’s find out.

 

RIOT’s 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 second quarter of 2024, the company mined 844 Bitcoins, a 52% 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 the company in a risky financial position, potentially leading to further share dilution as it seeks funding, which would result in additional losses for shareholders.

 

Estimates Moving South

Four 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 75.9%. This indicates a lack of confidence among analysts in the company's ability to improve its financial performance soon.

 

RIOT’s Low Valuation Due to Significant Decline

Due to a significant decline in its stock value year to date, RIOT's current valuation appears low. The stock is trading at a trailing 12-month Price/Earnings ratio of 11.6X, which is well below the industry average of 117.62X. The forward 12-month Price/Sales ratio for RIOT stands at 4.16X compared to the industry average of 6.79X.

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Current Levels Don’t Present an Ideal Entry Opportunity

RIOT has encountered considerable operational and financial difficulties following the Bitcoin halving, resulting in a sharp drop in its stock price. The company's financial outlook appears grim, with downward revisions in earnings estimates signaling the potential for continued decline. Considering the present market conditions, investors may want to proceed with caution before purchasing RIOT shares.

Given the likelihood of further correction in RIOT's stock, adopting a wait-and-see approach until a more advantageous entry point emerges could be a wise strategy.

RIOT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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