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Investment thesis

Although HIVE Blockchain Ltd. (OTCQX-HVBTF) stock has gained ~11.5% since my 8/7/19 article, volatility in the sector remains a concern going forward. Both bitcoin and ethereum – the two digital currencies that HVTFB mines- are up 20% YTD, which is bullish for the cryptocurrency industry. But volatility is now 4 times more than the S&P 500 and gold. HVBTF has a beta of 4.21 and the other companies in their peer group have betas between 2.94 and 7.86. A major contributing factor to this rise is due to rampant speculation regarding how the impending halving of bitcoin will affect price. It appears to me that there’s basically a 50/50 divide in the raging bull vs. bear tug of war in this regard. Given the uncertainty of this situation, my mantra on a short-term basis is conscius esse emptor (“let the buyer be very aware.”) However, I believe that HVBTF is less exposed than most of their peers because bitcoin represented only 0.002% of their newly minted digital currencies for the 3 months ended 12/31/19. This % will likely increase exponentially this year since the company announced on 4/8/20 that they have increased their bitcoin capacity by 100% and the rising price has made mining of this digital currency more profitable. Disclaimer aside, let’s discuss why I consider HVBTF worthy of a portion of an investor’s speculative portfolio.

Recent developments

There have been several significant developments on both a macro (industry-wide) and micro (company-specific) level. Undoubtedly the most prominent of these is the Q1 2020 COVID-19 pandemic , which I’ve referred to as a clear and present danger that has turned the world topsy- turvy. A more detailed look into the lasting ramifications to both our business and personal lives is way beyond the scope of this article and my ability to crystal ball the future. In terms of cryptocurrency, what rekindled my interest in the sector was a recent Fortune magazine article about how Max Levchin, the co-founder of PayPal believes that this pandemic will likely result in a decline in the use of cash. This would be a positive for the digital currency space, as more mainstream adoption may very well spur added interest in investing in both bitcoin and ethereum, which are the top 2 cryptocurrencies by market capitalization. COVID-19 is also affecting the public’s perception regarding using cash, despite the scientific community’s consensus that “coronavirus transmission via banknote is relatively unlikely.”

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HVBTF stock has outperformed its peer group

I created this table to highlight how well HVBTF stock has fared compared to its peer group:

Company Symbol

HVBTF

MGTI

RIOT

BTCS

USIA

52 Wk High

$0.54

$0.11

$4.88

$0.68

$9.75

52 Wk Low

$0.0585

$0.012

$0.51

$0.03

$0.0001

Recent Price

$0.33

$0.026

$1.85

$0.39

$0.77

Recent Price/ 52 Wk. High

61.1%

23.6%

37.9%

57.4%

0.001%

RIOT is highly-levered to bitcoin, and subject to short-term price fluctuations. MGTI and BTCS are financially unstable and have uncertain futures. I categorize USIA as a dead stock walking based on its suboptimal history and microscopic market capitalization.

HVBTF has better key metrics compared to its peer group

Let’s review key metrics of HVBTF’s peer group:

HVBTF

MGTI

RIOT

BTCS

UBIA

Company Name

HIVE Blockchain Technologies Ltd.

MGT Capital Investments, Inc.

Riot Blockchain, Inc.

BTCS Inc.

UBI Blockchain Internet, Ltd.

Market Cap

$110.56M

$11.61M

$60.56M

$10.25M

$1.10M

Enterprise Value

$107.84M

$11.52M

$53.50M

$10.27M

$4.42M

As the above table shows, HVBTF’s market cap and enterprise value (my preferred metrics of nanocap analysis) are both more than 100% greater than RIOT, and 500% greater than the average of its peer group, which is clearly a competitive advantage.

Valuation

HVBTF

MGTI

RIOT

BTCS

UBIA

Price/Sales (TTM)

3.25

14.86

5.30

9.75

EV/Sales (TTM)

3.34

25.60

7.82

39.05

HVBTF is #1 in the 2 valuation ratios above.

Growth

HVBTF is #1 in the growth category above.

Profitability

HVBTF

MGTI

RIOT

BTCS

UBIA

Gross Profit Margin

24.16%

-13.33%

92.66%

83.00%

-666.54%

EBIT Margin

-123.91%

-1,652.67%

-137.22%

-177,633%%

-2,192.21%

EBITDA Margin

1.64%

-1,614.89%

-135.48%

-177,559.19%

-2,173.19%

Net Income Margin

-225.79%

-1,951.33%

-293.10%

-1.19M%

-2,331.71%

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HVBTF is #1 in 3 of the 4 profitability categories above.

Momentum

HVBTF

MGTI

RIOT

BTCS

UBIA

1Y Price Performance

-19.75%

-63.89%

-54.77%

-35.93%

-98.57%

3 Year Price Performance

407.81%

-95.36%

-50.53%

-70.81%

-99.70%

5 Year Price Performance

1,525.00%

-94.47%

-57.95%

-99.90%

-99.99%

HVBTF is #1 in all 3 of the price performance metrics above.

Review of HVBTF’s 12/31/19 financial statements

As a former CPA and adjunct accounting and math instructor, I developed an interest in financial statement analysis as a barometer for stock investment decisions. An integral part of this focus is evaluating several ratios based on a company’s balance sheet, income statement and cash flow statement. My review of HVBTF’s condensed interim consolidated statements of financial position as of 12/31/19 (expressed in U. S. dollars unless otherwise indicated) was positive on several important fronts. The company had a cash balance of $6,187,545 and a healthy current ratio of 3.09 (which is equal to current assets of $17,521,487 divided by current liabilities of $5,670,189) which means that the company should be able to manage any headwinds that may arise on a short-term basis. I also noted that HVBTF’s current ratio, working capital and working capital ratio all showed improvement from the prior fiscal year. HVBTF’s condensed interim consolidated statements of income (loss) and comprehensive income (loss) also showed marked progress. For the 9 months ended 12/31/19 the company had higher sales, fewer expenses and a net loss of $2,584,024 compared to a net loss of $67,396,468 for the 9 months ended December 31, 2018. The company’s condensed interim consolidated statements of cash flows for the 9 months ended December 31, 2019 also showed significant improvement in 2 of the 3 components – cash used in operating activities and cash used in investing activities. Although there was a 13.7% decrease in cash provided by financing activities ($306,712 vs. $355,437), there was substantial improvement in the net decrease in cash of $7,790,773 ($622, 926 decrease for the 9 months ended 12/31/19 compared to a decrease of $8,413,699 for the 9 months ended 12/31/18.

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Conclusion

Based on the foregoing financial and operational review of Hive Blockchain Technologies Ltd. is clearly better positioned to weather the headwinds of the frothy cryptocurrency sector than RIOT, MGTI, BTCS and USIA. I believe that investors with a high risk tolerance should strongly consider taking a starter position in HVBTF with a nominal portion of their “mad money.” Although the digital currency sector is in its infancy, and there likely will be disruptive changes and pronounced volatility on the horizon, HVBTF is a proxy for the price of bitcoin and ethereum, and clearly is at the head of the class of its peer group.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.