Riot Platforms (RIOT -7.51%) is one of the top Bitcoin mining companies you can invest in today. Year to date, however, the stock has been struggling, and it's down 30%. But recently the company posted some impressive earnings numbers, even turning a healthy profit. Could Riot Platforms be an underrated stock to buy right now?
The company posted record numbers in Q1
On May 1, Riot Platforms released its earnings results for the first three months of 2024. During the period, the company reported a profit of $211.8 million, which was a new quarterly record for the business. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $245.7 million was another record high.
The caveat, however, is that the results were largely due to changes in fair value. With Bitcoin mining companies, gains and losses can play a significant role in whether the business turns a profit or not. Last quarter, for instance, changes in the fair value of Bitcoin had a positive $234.1 million impact on Riot's operations, which was far higher than all of its other expenses. Bitcoin mining costs of $41.1 million rose by 88% year over year, and selling, general, and administrative costs totaling $57.7 million were more than four times the $12.7 million Riot reported for that line item a year ago.
While it's true that Riot had a record performance in Q1, this is what you would call low-quality earnings in the sense that they may not be sustainable or prove to be consistent. When gains and losses can be the difference between a profit and a loss on a company's financials, that introduces a lot of period-over-period volatility; the company's operating income this past quarter was $203.9 million versus only $17.4 million a year ago.
And just because Bitcoin's value is rising doesn't mean Riot's stock will generate great returns for investors. While that may have been the case in the past, it could be a different situation moving forward.
Riot's stock and Bitcoin have diverged of late
For the past few years, Riot's stock followed a similar path to Bitcoin. Mining companies benefit from rising crypto prices, and so it's unsurprising to see that as the digital currency rises in value, so too does the value of a top mining company such as Riot. But recently, that has begun to change.
The recent Bitcoin halving event may be responsible for this divergence, as investors know that it will take more than just a high price to help Riot generate strong numbers in the future; the company will also need to become more efficient now that mining rewards have been cut in half.
Riot is scaling its business
Riot has been investing in increasing its hash rate, which can help it mine more Bitcoin. On the company's recent earnings release, management stated that by the end of the current year, its self-mining hash rate capacity should hit 31 exahashes per second -- nearly tripling its existing hash rate capacity. The company says its Corsicana facility "will be the largest dedicated Bitcoin mining facility in the world once fully developed."
The challenge, however, is that these efforts inevitably lead to more costs for Riot as it spends money on infrastructure and adds more staff. The company needs to increase capacity to be able to mine more Bitcoin to help offset the effects of halving. But at the same time, its day-to-day operating expenses will go up, which will make it more difficult to stay in the black.
Is Riot Platforms a good stock to buy?
Riot Platforms' recent results were impressive, but they simply may not be sustainable. That's why investors should exercise a degree of caution with the stock, as future quarters could look much different, especially as the company begins to feel the effects of halving and receiving less Bitcoin for its mining efforts.
Although the crypto stock may look cheap right now, investors are better off just keeping an eye on Riot Platforms rather than investing in it; there's still too much risk in the business for it to be anything more than a speculative stock.
