Riot Platforms, Inc. (RIOT) has experienced a tumultuous year, with its stock price plummeting 52.7% year-to-date. This sharp decline contrasts starkly with the 25.1% growth seen in its industry and the 19.6% increase in the Zacks S&P 500 composite. This downturn mirrors the performance of other cryptocurrency-focused stocks, such as Cipher Mining (CIFR) and Marathon Digital (MARA), which have also witnessed significant drops in their share prices during the same period.
RIOT’s stock currently trades near its 52-week low, reflecting bearish investor sentiment. The company’s stock price has fallen below its 50-day moving average, further indicating a lack of confidence among investors. Given this bleak outlook, a crucial question arises for investors: is now the right time to buy RIOT stock?
The Bitcoin halving event, which occurred in the first half of 2024, has presented significant challenges for Bitcoin miners, including Riot. The halving effectively halved the amount of Bitcoin rewarded to miners for each block mined. This means miners, including Riot, now have to work twice as hard to produce the same amount of Bitcoin. However, the expected price increase in Bitcoin, which was supposed to offset the increased difficulty, hasn’t materialized, further exacerbating the issue.
Riot’s production of Bitcoin has taken a hit, with a 13% sequential decrease in August 2024. This decline highlights the operational inefficiencies and challenges the company faces in the post-halving environment. Further illustrating the difficulty, RIOT mined only 844 Bitcoins in the second quarter of 2024, a 52% drop year-over-year. This decrease is attributed primarily to the sharp increase in Bitcoin network difficulty since January 2023.
These operational challenges have put the company in a precarious financial position. Riot may need to resort to share dilution to secure funding, which would further dilute the value of existing shares and potentially lead to significant losses for shareholders.
In addition to the operational struggles, analyst sentiment towards Riot is also turning negative. Over the past 60 days, four analysts have downgraded their estimates for the company’s 2024 earnings, while none have upgraded. This downward revision in estimates reflects a lack of confidence in Riot’s ability to turn around its financial performance in the near future. The Zacks Consensus Estimate for 2024 earnings has declined by 75.9% during this period.
While some investors may be tempted to buy RIOT at these low levels, the company’s current struggles and lack of confidence from analysts suggest a wait-and-watch approach is more prudent. Given the company’s steep decline year-to-date and the significant challenges it faces in the post-halving environment, a “Hold” recommendation appears appropriate at this time.
Investors should closely monitor Riot’s progress in overcoming its post-halving challenges, including its ability to increase Bitcoin production and improve its financial performance. Only when these factors show signs of improvement can investors consider entering or increasing their positions in RIOT.
