Hut 8 Stock Is Great: But Here’s Why You Shouldn’t Buy It

Hut 8 stock (TSX:HUT) has surged in share price as Bitcoin (CRYPTO:BTC) continues to rise. But I’d still stay far away from this crypto stock.

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The price of Bitcoin (CRYPTO:BTC) continued to climb even higher this week, surging past US$60,000 as investors got back into crypto. This has caused other companies, Canadian ones included, to see some renewed interest once more.

One such company is Hut 8 Mining (TSX:HUT), which has seen shares climb 13% in the last year. However, shares are still down 58% since 52-week highs. It’s now seeing incredibly active trading, with its one-day volume at about 761,000 active trades right now.

So why are investors so interested in Hut stock? Let’s get into it.

Bitcoin, but not

Hut stock boasts being one of the first North American bitcoin mining companies, and one of the first publicly traded Bitcoin mining companies in the world. The business mainly focuses on Bitcoin mining, but also offers data centre services. These include hosting, repair, and managed services for other miners.

Its operations hold a diverse portfolio of facilities across Canada, using clean energy sources such as hydro and nuclear power plants to power their facilities. Further, they’re focused on cool climates to aid in efficient mining.

And the company continues to expand further. Most recently, the stock made two strong announcements. This included the completion of acquiring four power generation facilities. It also included construction on a new digital asset mining site in Texas.

Has its strengths passed onto earnings?

The thing is, the company is incredibly dependent on Bitcoin and its price. And that hasn’t been great over the last while. Hut stock has missed earnings estimates for the last two quarters as of writing. While earnings are due out next month, the company recently reported its third quarter back in November.

During that quarter, Hut stock reported a loss of $1.20 earnings per share. This missed out on analyst estimates of a loss of $0.32 per share. What’s more, while the company didn’t release revenue figures, it did state that it mined 631 Bitcoins in the quarter. Easy math shows that would be worth US$37,860,000 as of writing!

Even so, the mined cryptocurrency came on the market while Bitcoin was down, and mining output was lower as well. Plus, Hut stock incurred an impairment charge after a power purchase agreement. Further, there was a loss on the revaluation of digital assets. This all hurt the bottom line, even though top-line growth should occur from more mining operations and those new revenue streams such as data centres.

Risky, or not?

In my view, Hut 8 stock is far too risky of an investment to get into at this point. While the company’s at the beginning stages of finding new revenue streams, it’s not there yet. Meanwhile, the focus on Bitcoin means it’s far too dependent on the price. A price that, as we’ve seen, can crash at any time.

Plus, the company has a lack of consistent profitability, and trades in an incredibly competitive landscape. And with regulatory uncertainty, who knows about the future of this stock.

What it will come down to is the price of Bitcoin. That will be the be all and end all for this stock. And in that case, the future outlook looks far too risky. Until Hut 8 stock can all but guarantee that Bitcoin will continue doing well, or creates more diversification, I would stay away from it for now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Bitcoin. The Motley Fool has a disclosure policy.

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