HIVE Blockchain Applied sciences (TSXV:HIVE) resides as much as expectations as a revolutionary tech inventory in one of many fastest-growing market segments. The inventory is up by greater than 2,000% over the previous 12 months. That’s far larger than its underlying asset: Bitcoin. Can the corporate maintain this outperformance, or is the inventory due for a correction?
Right here’s a better look.
Why is HIVE inventory outperforming?
HIVE Blockchain is a crypto mining agency. This implies it operates server farms to generate new models of cryptocurrency. Bitcoin is the flagship cryptocurrency it mines. A part of the freshly minted BTC is held in reserves, whereas the remaining is bought at market worth to gasoline enlargement.
With this in thoughts, HIVE inventory ought to be correlated to the worth of BTC the best way gold mining shares are correlated to the worth of gold. Nevertheless, HIVE is up 2,000% over the previous yr, whereas BTC is up 605% over the identical interval. This outperformance is predicated on the truth that HIVE gives higher diversification.
The diversified miner not solely mines Bitcoin however Ethereum and Ethereum basic. By mining different cryptocurrencies, HIVE Blockchain reduces its danger publicity in addition to reliance on Bitcoin. Likewise, the corporate is much less dangerous, as its worth shouldn’t be tied solely to the worth of Bitcoin.
Ethereum has appreciated quicker than Bitcoin. It’s up 823% over the previous yr. Nevertheless, there’s nonetheless a niche between its efficiency and HIVE’s.
HIVE Blockchain has benefited an incredible deal from the bull market in digital property. Within the third quarter ended December 31, 2020, revenues had been up 174% to $13.7 million in comparison with $5 million reported the earlier yr. Likewise, earnings greater than quadrupled to $0.05 a share, up from $0.01 the reported the earlier yr similar quarter, because the gross mining margin improved to 78% from 77%.
Going by the third-quarter numbers, the corporate is properly positioned to report spectacular numbers for its fourth quarter on Bitcoin’s worth greater than doubling to report highs of above US$50,000. Analysts estimate the annual income may exceed $100 million.
Nevertheless, HIVE is trading at $1.8 billion. That’s 18 instances larger than the best-case situation of future income. By no means thoughts the danger that Bitcoin may crash by the top of the yr the best way it has after earlier bull cycles.
HIVE’s valuation can also be a number of instances larger than the market worth of its crypto reserves. Irrespective of which yardstick you utilize, the inventory appears overpriced and might be due for a correction.
Early traders in HIVE inventory have had an incredible run. This publicly traded, regulated inventory has outperformed most flagship cryptocurrencies over the previous yr. Nevertheless, now the corporate seems prefer it’s priced to perfection.
In my view, HIVE can not preserve defying gravity like this eternally. Its underlying property and optimistic initiatives of future gross sales don’t justify the present valuation. Traders ought to restrict their publicity right here and possibly count on a correction quickly. Contemplating including direct publicity to Bitcoin or Ethereum by means of a fund as an alternative.
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