BUSINESS
Riot Blockchain, Inc., together with its subsidiaries, focuses on bitcoin mining operations in North America. It operates through Bitcoin Mining, Data Center Hosting, and Electrical Products and Engineering segments. As of December 31, 2021, it operated approximately 30,907 miners. Riot Blockchain, Inc. was incorporated in 2000 and is headquartered in Castle Rock, Colorado.
INVESTMENT RATING
RIOT is expected to be Value Creation neutral reflecting capital returns that are forecasted to be in line with the cost of capital.
Riot Platforms has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Riot Platforms has a slightly positive Appreciation Score of 61 and a good Power Rating of 71, triggering the Positive Value Trend Rating.
Riot Platforms’ stock is selling well below targeted value. The current stock price of $17.37 compares to targeted value 12 months forward of $27.
This moderately high appreciation potential results in an appreciation score of 61 (only 39% of the universe has greater appreciation potential.)
Riot Platforms has a Power Rating of 71. (This good Power Rating indicates that RIOT has a better chance of achieving attractive investment performance over the near to intermediate term than all but 29% of companies in the universe.)
Factors contributing to this good Power Rating include: the recent trend in RIOT’s earnings estimates has been favorable; and recent price action has been slightly favorable. An offsetting factor is the Prepackaged Software comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
RIOT’s financial strength is below average. Financial strength rating is 36.
Relative to the S&P 500 Composite, Riot Platforms Inc has significant Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that RIOT is normal risk. Relative weaknesses include: low historical profitability, low financial strength, high stock price volatility, and low historical growth. RIOT’s valuation is high: low dividend yield, high P/E ratio, and low price/book ratio. RIOT has unusually low market capitalization.
CURRENT SIGNALS
Riot Platforms’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Riot Platforms’ current technical position is very strong. The stock price is in a 0.9 month up move. The stock has appreciated 59.9% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Significant negative changes in investment behavior have recently occurred for Riot Platforms Inc (NASDAQ: RIOT): negative upside/downside volume developed.
Positive development: the stock’s power rating rose above 70. Negative development: significant quarterly earnings deceleration occurred.
In light of this we are reviewing our current Overall Rating of B. This review will be completed in the next several days.
On 2/26/24, Riot Platforms Inc (NASDAQ: RIOT) stock enjoyed a major increase of 17.0%, closing at $17.37. Moreover, this advance was accompanied by above average trading volume at 129% of normal. Relative to the market the stock has been strong over the last nine months and has risen 5.1% during the last week.
CASH FLOW
In 2022, Riot Platforms experienced a very significant reduction in cash of -$92.79 million (-29%). Sources of cash were much lower than uses. Cash consumed from 2022 EBITDA totaled -$1.98 million. Non-operating uses consumed -$411.38 million (+20808% of EBITDA). Cash taxes contributed +$11.75 million (-594% of EBITDA). Re-investment in the business amounted to -$3.67 million (+186% of EBITDA). On a net basis, debt investors contributed +$8.81 million (-446% of EBITDA) while equity investors contributed +$303.68 million (-15360% of EBITDA).
Riot Platforms’ Non-operating Income, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by stability for the Riot Platforms Peer Group. In most years, Riot Platforms was in the top quartile and lower quartile. Currently, Riot Platforms is upper quartile at +20808% of EBITDA (-$411.38 million).
Riot Platforms’ Cash Taxes, %EBITDA experienced a very strong overall downtrend over the period. This downtrend was accompanied by stability for the Riot Platforms Peer Group. (Since 2020 Cash Taxes, %EBITDA has accelerated very sharply.) In most years, Riot Platforms was in the top quartile and lower quartile. Currently, Riot Platforms is lower quartile at -594% of EBITDA (+$11.75 million).
Riot Platforms’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Riot Platforms Peer Group. In most years, Riot Platforms was in the top quartile and second quartile. Currently, Riot Platforms is upper quartile at +186% of EBITDA (-$3.67 million).
Riot Platforms’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Riot Platforms Peer Group. In most years, Riot Platforms was in the top quartile and lower quartile. Currently, Riot Platforms is lower quartile at -446% of EBITDA (+$8.81 million).
Riot Platforms’ Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Riot Platforms Peer Group. (Since 2020 Equity Investors, %EBITDA has decelerated very sharply.) In most years, Riot Platforms was in the top quartile and lower quartile. Currently, Riot Platforms is lower quartile at -15360% of EBITDA (+$303.68 million).
Riot Platforms’ Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Riot Platforms Peer Group. (Since 2020 Change in Cash, %EBITDA has accelerated very sharply.) In most years, Riot Platforms was in the top quartile and lower quartile. Currently, Riot Platforms is upper quartile at +4694% of EBITDA (-$92.79 million).
Riot Platforms’ Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Riot Platforms Peer Group. In most years, Riot Platforms was in the top quartile and lower quartile. Currently, Riot Platforms is lower quartile at +89%.
PROFITABILITY
Riot Platforms’ operating performance since 2013 is unavailable.
The productivity of Riot Platforms’ assets declined over the full period 2013-2023: asset turnover has suffered a volatile overall downtrend even as it experienced a very sharp recovery after the 2020 low.
Riot Platforms’ return on equity is slightly above median (-21.2%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is upper quartile (-20.1%) reflecting asset turnover that is at median (0.18X) and upper quartile pretax margin (-111.%).
Tax “keep” rate (income tax management) is lower quartile (97.3%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.09X).
GROWTH RATES
There are no significant differences between Riot Platforms’ longer term growth and growth in recent years.
Riot Platforms’ historical income statement and balance sheet growth are not available.
Annual revenue growth has been 79.5% per year.
Total asset growth has been 20.5% per year.
Annual E.P.S. growth is not available.
Equity growth has been 23.2% per year.
No consensus growth rate forecast is available for Riot Platforms.
Relative to the Riot Platforms Peer Group, Riot Platforms’ historical growth measures are generally top quartile. Equity growth (23.2%) has been upper quartile. Total asset growth (20.5%) has been upper quartile. Revenue growth (79.5%) has been at the upper quartile. E.P.S. growth is unavailable.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Riot Platforms’ stock price performance has been extremely volatile and significantly below market. Between April, 2013 and February, 2024, Riot Platforms’ stock price rose +17%; relative to the market, this was a -63% loss. Significant price moves during the period: 1) December, 2022 – July, 2023: +446%; 2) July, 2022 – December, 2022: -54%; 3) March, 2022 – June, 2022: -80%; 4) November, 2021 – January, 2022: -57%; 5) September, 2020 – March, 2021: +1873%; and 6) March, 2020 – August, 2020: +320%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 73.8% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of 73.8% is upper quartile relative to Riot Platforms Inc Peer Group.
Current 5-year total return performance of 42.6% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 42.6% relative to S&P 500 Composite, Riot Platforms’ total return performance is upper quartile relative to Riot Platforms Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, RIOT’s overall valuation is high. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is above median. Price/equity ratio is below median. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to Riot Platforms Peer Group, RIOT’s overall valuation is quite high. Ratio of enterprise value/assets is upper quartile. Price/equity ratio is at the upper quartile. Ratio of enterprise value/revenue is slightly above median. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Riot Platforms has no value gap compared to the median. For RIOT to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 13.78X to 13.05X. If RIOT’s ratio of enterprise value/revenue were to fall to 13.05X, its stock price would be lower by $-1 to $16.
For RIOT to achieve upper quartile valuation relative to the Riot Platforms Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 13.78X to 22.47X. If RIOT’s ratio of enterprise value/revenue were to rise to 22.47X, its stock price would increase by $11 from the current level of $17.
VALUE TARGETS
RIOT is expected to be Value Creation neutral reflecting capital returns that are forecasted to be in line with the cost of capital.
Riot Platforms’ current Price Target of $25 represents a +42% change from the current price of $17.37.
This moderately high appreciation potential results in an appreciation score of 61 (only 39% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 61, the high Power Rating of 71 contributes to an Value Trend Rating of B.
Riot Platforms’ current Price Target is $25 (-3% from the 2022 Target of $25 but +42% from the 02/26/24 price of $17.37). This plateau in the Target is the result of a +301% increase in the equity base and a -76% decrease in the price/equity multiple. The forecasted decline in cost of equity has a huge positive impact on the price/equity multiple and the forecasted increase in growth has a very slight positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 4.0% — below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is steady at the 2020 low of 4%.
PTR’s growth forecast is 110.% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2017 and 2022. The current forecast is significantly above the 2017 low of 3%.
PTR’s cost of equity forecast is 4.9% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2014 and 2022. The current forecast is above the 2014 low of 1.9%.
At Riot Platforms’ current price of $17.37, investors are placing a positive value of $10 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 106.0% per year, and a return on equity of 10.1% versus a cost of equity of 8.9%.
PTR’s 2024 Price Target of $25 is based on these forecasts and reflects an estimated value of existing assets of $30 and a value of future investments of $-6.
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