There is no investment hotter than Bitcoin right now as investors are buying cryptocurrencies to hedge against inflation and use them as a store of value, over precious metals. While the most popular cryptocurrency Bitcoin traded below $4,000 at the onset of the COVID-19 in March last year, the digital currency had hit an all-time high of $58,330.57 over the weekend to reach a $1 trillion market cap. However, the cryptocurrency tumbled as the working week began.
The sharp withdrawal of Bitcoin can be attributable to a tweet by the world’s richest man, Tesla (TSLA) CEO Elon Musk, that the prices of Bitcoin “do seem high.” Consequently, Bitcoin dropped more than 16%, its largest daily drop in a month.
In recent weeks, Bitcoin received a boost by large strategic investments in it by companies like TSLA, Mastercard (MA), Bank of New York Mellon, and MicroStrategy (MSTR). Given the rapid pace of digitization, investors were enamored by the growth prospects and potential of the crypto space. This has sparked increased interest from players in different industries in expanding into Bitcoin mining operations.
Treasury Secretary Janet Yellen issued a warning on Monday that bitcoin is an “extremely inefficient” way to conduct monetary transactions and the dangers that it poses both to investors and the public. Following this warning, the expected excessive regulation on cryptocurrencies might have added to the selling pressure.
Cryptocurrency players like Ebang International Holdings Inc. (EBON – Get Rating), CleanSpark, Inc. (CLSK – Get Rating), and The9 Limited (NCTY – Get Rating) have run too far too fast, and it appears from their current valuation multiples that a pullback is due for them. And Bitcoin’s correction could lead to a sell-off for these stocks. So, it’s better to avoid them for now.
EBON is a blockchain technology company that manufactures and sells Bitcoin mining machines and telecommunication products in the People’s Republic of China, the United States, Hong Kong, and internationally. With strong application-specific integrated circuit (ASIC) chip design capability, EBON is a leading mining machine producer in the global market with steady access to wafer foundry capacity.
On February 17, 2021, EBON launched its Bitcoin mining business. According to the company’s resolution, EBON plans to operate its Bitcoin mining business by adopting a combination of deploying self-manufactured mining machines and mining machines purchased from other manufacturers as well as leasing computing powers from other mining farms. At the same time, the company also expects to invest in data center constructions to provide support for Bitcoin mining activities. Additionally, EBON expects to commence public testing of its cryptocurrency exchange and officially launch the exchange in the first quarter of 2021. Currently, the company has completed the internal testing of its cryptocurrency exchange.
In the first six months of 2020, EBON sold 0.25 million Thash/s of total computing power, representing a year-over-year decrease of 86% from the comparable period in the prior year. Total net revenues during the period were US$11.04 million, falling 50.6% year-over-year. However, operating losses narrowed to $8.68 million from the year-ago loss of $27.47 million. Additionally, the company reported a loss of $0.06 per share, compared to the year-ago loss of $0.16 per share.
EBON is setting itself up for multiple revenue streams. However, the company is not making profits yet and its current valuations are not justified. In terms of trailing-twelve-month EV/Sales, EBON is currently trading at 17.18x, 259% higher than the industry average of 4.78x. In terms of the trailing-twelve-month P/S ratio as well, EBON is trading significantly higher than the industry average (12.65x vs 4.50x).
EBON’s move to enter into the mining business will contribute to its top-line and optimize its product offering structure. It will help the company’s transformation from a hardware manufacturer to a blockchain company with comprehensive involvements in its industry chain. However, Bitcoin mining is profitable as long as Bitcoin prices show strength. A high price movement will drive demand for EBON’s mining products. Hence, in line with the Bitcoin correction, the stock lost nearly 24% yesterday intraday to close the session at $8.41 with a year-to-date gain of 38.6%.
EBON’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
EBON has a grade of D for both Stability and Quality. It is ranked #36 of 43 stocks in the Technology – Electronics industry.
In total, we rate EBON on eight different levels. In addition to the POWR Ratings grades I’ve just highlighted, you can see the EBON’s ratings for Growth, Value, Momentum, and Sentiment here.
CLSK provides energy software and control technology solutions worldwide. It offers distributed energy systems and microgrids that allow customers to manage renewable energy generation, storage, and consumption. CLSK entered into the Bitcoin business with the acquisition of ATL Data Centers, a Mining as a Service (MaaS) company in December 2020.
CLSK has been targeted by short-sellers in recent weeks, with Culper Research accusing the company of fraudulent reports. According to the lawsuit’s allegations, CLSK has…
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