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Despite a sell-off last week mainly due to traders taking profits, Bitcoin’s price has risen nearly 170% this year, reaching just under $ 20,000 yesterday. The coronavirus crisis, accommodative monetary policy and a weak US dollar have strengthened its appeal to investors. As a result, cryptocurrencies have seen a strong rally in the past few months.
Riot Blockchain Inc. (RIOT) and Silvergate Capital Corp (SI), two of the major players in the digital and cryptocurrency industry, have thrived amid the pandemic as investors are now considering cryptocurrencies in their portfolios to hedge against inflation.
Both stocks have generated significant returns over the past year. While RIOT returned 363% over this period, SI gained 106%. In terms of year-to-date performance, RIOT is a clear winner with a return of 458% versus SI’s 108%. But which of these actions is a better choice now? Let’s find out.
Company structure and latest movements
RIOT focuses on building, supporting and functioning the ecosystem of Blockchain technologies, as well as on the production of substances in vitro. Its portfolio includes Verady, Coinsquare, and Tesspay, who are involved in digital currency mining operations, which use specialized computers that generate digital currency, mainly bitcoin. The hardware fleet currently implemented by RIOT is made up of 6,040 next generation Bitmain Antminers, with a hash rate capacity of 456 PH / s.
RIOT is aggressively continuing its operational expansion with the purchase of an additional 2,500 next-generation S19 Pro Antminer rigs from BitmainTech PTE in October. The company wants to increase its current hash rate from around 500 PH / s – to around 2.3 EH / s by June 202.1 by deploying a total of 22,640 miners. RIOT paid $ 6.1 million for facilities that are scheduled for delivery and implementation in December.
SI operates as a banking holding company for Silvergate Bank providing banking products and services to private and corporate clients in the United States and internationally. The company focuses on innovative financial infrastructure solutions and services for participants in the nascent digital currency industry. SI has more than 925 digital currency customers who use its platform daily to grow and scale their businesses.
SI has grown significantly over its key asset over the past two years, the Silvergate Exchange Network (SEN), a virtually instant payment network using the company’s application programming interface (API). SI recently achieved $ 100 billion in transfer volumes through its SEN platform. The bank added 47 new digital currency clients in the last quarter reported and has 200 cryptocurrency clients in the pipeline or in the onboarding process.
Recent financial results
In the third quarter that ended in September 2020, RIOT’s mining revenues increased 41.5% year-over-year to $ 2.4 million. The company has produced 730 newly minted bitcoin (BTC) since the start of the year, despite downtime in the previous quarter. RIOT reported a quarterly loss of $ 0.04 per share, significantly improving from a quarter-ago loss of $ 0.31 per share.
RIOT received and distributed 3,040 next-generation Bitmain S19 and S19 Pro Antminers during the period from July to November 2020, increasing the company’s total hashrate capacity to 566 PH / s. RIOT also entered into a contract for 15,600 next-generation Bitmain S19 Pro Antminer in the third quarter of 2020.
SI deposit fees from digital currency customers were $ 3.3 million in the third quarter, up 36% year-over-year, with 68,361 transactions handled by SEN. Digital currency deposits grew by $ 586 million sequentially to $ 2.1 billion. Total loans were $ 1.4 billion, up 39.7% from a year ago quarter. Earnings per share for the quarter were $ 0.37, up 27.6% sequentially.
The SEN handled $ 36.7 billion in US dollar transfers in the last quarter reported, an increase of 252% from $ 10.4 billion a year ago. We are witnessing an exponential growth of digital deposit by companies and institutional investors in the cryptocurrency sector. The rising price and volatility in Bitcoin are enabling near-zero cost deposits for SI’s securities and loan portfolio.
Here RIOT is in an advantageous position.
Past and expected financial performance
While RIOT’s revenues grew at a CAGR of 9.1% over the past 12 months, its EPS declined at an average rate of 63.7% over the same period.
The market expects the company’s turnover to increase by 412.5% next year. RIOT’s EPS is expected to grow 103.8% next year and at a rate of 20% annually over the next five years.
On the other hand, the revenues of SI and EPS have both decreased at a CAGR of 11.7% and 32.7%, respectively, over the past 12 months.
The market expects SI’s turnover to increase by 7.2% next year. The company’s EPS is expected to grow 84.2% this quarter, 8.8% this year and 3.2% next year.
Here, too, RIOT has an advantage over SI.
Profitability
SI’s final 12-month revenue is more than ten times that generated by RIOT. Additionally, SI is more profitable with a 25% net income margin, compared to RIOT’s negative value.
In addition, SI’s ROE and ROA of 8% and 0.9% compare favorably with RIOT’s negative return.
Rating
In terms of final 12-month P / S, RIOT is currently trading at 25.92x, which is 236% more expensive than SI, which is currently trading at 7.49x. Furthermore, IS is less expensive in terms of final 12-month P / B (2.18x vs 5.04x),
Although RIOT looks much more expensive than SI, this premium is worth paying considering RIOT’s earnings growth potential.
POWR ratings
Both RIOT and SI are rated “Strong Buy” in our proprietary POWR rating system. Here is how the four components of POWR ratings are classified for RIOT and SI:
RIOT has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade and a “D” for Industry Rank. In the Technology – Services sector at 54 stocks, it is ranked # 8.
SI has an “A” for Trade Grade and Peer Grade, a “B” for Buy & Hold Grade and a “C” for Industry Rank. It is ranked # 7 in the group of 52 Pacific Regional Banks.
The winner
While both RIOT and SI are good long-term investments considering their continued business growth and wider adoption of cryptocurrency, RIOT appears to be a better buy based on the factors discussed here.
Digital payment giants like Square (SQ) and PayPal (PYPL) recently launched a new service that allows their customers to transact in Bitcoin. Additionally, money management giant Fidelity is launching a bitcoin fund for wealthy investors. Therefore, the growing popularity of Bitcoin among investors could further strengthen the demand for cryptocurrency.
While SI is a relatively cheaper option to bet on accelerating the move to cryptocurrency by institutional and retail investors, RIOT is growing rapidly and its premium valuation is justified as it has more room to increase its earnings.
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SI stock traded at $ 35.74 per share on Tuesday afternoon, up $ 0.15 (+ 0.42%). Since the beginning of the year, the IS has gained 124.64%, compared with a 15.47% increase in the benchmark S&P 500 during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for markets and his love of words led him to become a financial journalist. He began his career as an equity analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen her knowledge of financial analysis and investment strategies. More…
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