Small-Cap Bitcoin Name Enters Rally Mode
Here's a trade idea for a bitcoin miner with some well-defined momentum support.
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Ever heard of CleanSpark Inc CLSK?
As for myself, only really in passing. Until now. CleanSpark is a Henderson, Nevada headquartered bitcoin mining company. The firm owns and operates data centers in Georgia, Mississippi, Tennessee and Wyoming. The firm designs its corporate infrastructure to secure and support its bitcoin network.
Its mining units are capable of producing more than 40 exahashes per second (EH/s) of computing power. At any one time, it has up to 188,500 machines working solely on the mining of the world's best-known cryptocurrency with a hash-rate capacity of 27.6 EH/s and a fleet-wide efficiency of 21.94 joules per terahash. The firm operates through many subsidiaries, which are probably too many to name here for the sake of brevity.
Why bring this name up today? Well, for one, the stock trades for less than $10. Secondly, the stock is at a place on its chart where an attempted technical breakout is either imminent or will fail. There's only two ways to likely go from here.
Earnings
Back in early May, CleanSpark posted its fiscal second quarter numbers. The firm put a GAAP EPS of -$0.49 on revenue of $181.7 million to the tape. Despite revenue growth of 62.5%, these top- and bottom-line results both badly missed Wall Street's expectations. This was the third quarter in four that CleanSpark had posted a loss. In fact, the firm has posted a loss for 10 of the past 13 quarters.
However, things are looking up for the current quarter. Wall Street sees the firm's fiscal third quarter performance, which will be reported in early August, landing at an adjusted EPS of $0.55, or GAAP EPS of $0.35 on revenue of roughly $193 million. That's profitability on revenue growth of more than 85%.
Fundamentals
Cash flows aren't pretty. I'm not going to lie. Over the trailing 12 months as of this past March, CleanSpark had generated an operating cash flow of -$372.9 million. Tack on capex spending of $114.6 million and free cash flow over the past year came to -$487.5 million. Still the firm was able to repurchase $152.5 million worth of common stock over that time.
Despite the cash burn, the balance sheet, or at least the current situation, is in better shape than some may have thought. As of March, the firm's cash position stood at $100.9 million, but with current assets of $947.5 million. Current liabilities add up to just $109.3 million including just $5.4 million in debt that will mature within a year. That's a current ratio of 8.67, which is terrific. Hopefully, with profitability expected for the quarter, there will be positive cash flows over the three months and no cash burn. Thus, no new pressure on the balance sheet.
Total assets amount to $2.657 billion, half of which is in property and equipment. Goodwill and intangibles make up just 5% of total assets. Total liabilities less equity comes to $766.5 million. Here is where the risk comes in. The firm has $641.7 million worth of long-term debt on the books, which is going to be a drag on performance unless cash flows turn positive this quarter as I suspect they will and then manage to stay positive.
The Chart
Readers will see two positive-looking patterns present on the chart of CLSK. Take a look at this:
The shares appear to be rallying out of an inverted head and shoulders pattern (bullish) with a $9.40 pivot. CLSK had since found support at its own 50-day SMA on three consecutive trading sessions and now will again try to take on its 200-day SMA. New upside pivot of an even $10. With a suddenly bullish looking daily MACD and a reading for relative strength that's better than neutral, I could make an argument for a short-term target price in between $12.50 and $13. Now, look at this:
This is the same stock over the same time frame. I replaced the inverted head and shoulders with a cup with handle (also bullish) with an $11 pivot. That also takes any potential target price up into the $14 area.
One thing appears clear to me. CleanSpeak is in rally mode, and currently has two unrelated, but well-defined technical patterns supporting this upward momentum. Panic? Well, I would not hang on to the shares if they came in and failed to hold established support at the 50-day line.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
