Down More Than 70% in 2022, is Now a Good Time to Buy Core Scientific?

Core Scientific, Inc. (CORZ) in Austin, Tex., mines digital assets and provides blockchain infrastructure, software solutions, and services. The company operates best-in-class large-scale purpose-built facilities to mine digital assets. In addition, it is one of the largest net carbon neutral blockchain infrastructure hosting providers and digital asset mining companies in North America. CORZ went public through a reverse merger with Power & Digital Infrastructure Acquisition Corp. on January 20. It raised $190 million in net cash proceeds through the transaction.

CORZ CEO and Co-Chairman Mike Levitt said, “Entering the public markets represents a significant milestone in Core Scientific’s evolution, yet we are even more excited about the future opportunities for value creation…As one of the largest publicly traded blockchain infrastructure providers and digital asset miners in North America, we are focused on growing our capacity, defending and securing the blockchain ecosystem and building long-term shareholder value.”

However, CORZ’s shares have declined  70.3%in price since the company’s stock market debut to close Friday’s trading session at $2.78. Also, the stock has plummeted 47.7% over the past month and 24.6% over the past five days.

Here is what could shape CORZ’s performance in the near term:

Surmounting Losses

For its fiscal first quarter, ended March 31, 2022, CORZ’s revenues have increased 255% year-over-year to $192.50 million. Its gross profit came in at $70 million, up 382% from the same period last year.

The company’s total operating losses have increased 710.9% from the prior-year quarter to $44.90 million. Its loss before income taxes stood at $423.80 million, compared to $6.85 million EBT reported in the same period last year. Also, the company’s net loss came in at $466.20 million, translating to a $1.52 loss per share. This compares to a net income of $6.85 million and EPS of $0.04 reported in its  fiscal 2021 first quarter.

Its net cash outflow from operating activities amounted to $3.62 million, compared to $15.41 million in cash inflow reported in the prior-year quarter. Its cash, cash equivalents, and restricted cash have declined 221.1% from their year-ago value to $110.43 million.

Industry Headwinds

The cryptocurrency market has had a tumultuous year, with investors adopting a bearish stance amid surging volatility and geopolitical crises. Bitcoin, the largest cryptocurrency by market cap, is down 32.1% year-to-date. Cryptocurrencies have fared more poorly than equities so far this year, with  the benchmark S&P 500 index declining 13.1% year-to-date.

According to Josh Olszewicz, head of research at Valkyrie Investments, “Uncertainty in the global economy due to high inflation and the likelihood we are in a recession, paired with the prevalence of central bankers raising rates, is likely going to force all assets downward at least through the end of the summer.” He expects bitcoin to slump as low as $22,000 during the current crypto winter.

Given this backdrop, CORZ’s growth might be limited due to the bearish market sentiment amid the continuing crypto crash.

POWR Ratings Reflect Bleak Prospects

CORZ has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

CORZ has a D grade for Sentiment and Quality. Analysts expect the company’s revenues and EPS to decline 14.9% and 49.2%, respectively, year-over-year to $256.80 million and $0.28, respectively, in its fiscal fourth-quarter ending Dec. 31, 2022.This justifies the Sentiment grade. In addition, CORZ’s negative net profit margin is in sync with the Quality grade.

Of the 80 stocks in the Technology – Services industry, CORZ is ranked #69.

Beyond what I have stated above, view CORZ ratings for Growth, Sentiment, Stability, and Momentum here.

Bottom Line

Bitcoin mining is one of the major sources of revenue for CORZ. In July last year, the company acquired one of its largest hosting customers Blockcap, whose primary business was mining Bitcoin. Because the crypto crash is expected to continue, CORZ’s revenues are expected to take a hit in a new term. In fact, crypto firms expect thousands of digital currencies to collapse, as witnessed during the early dotcom days, deepening investors’ fears. Given this bleak outlook, we think crypto stock CORZ is best avoided now.

How Does Core Scientific (CORZ) Stack Up Against its Peers?

While CORZ has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Fujitsu Limited (FJTSY), NTT Data Corporation (NTDTY), and Information Services Group, Inc. (III), which have an A (Strong Buy) rating.

Note that III is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

CORZ shares were trading at $2.61 per share on Monday morning, down $0.17 (-6.12%). Year-to-date, CORZ has declined -76.16%, versus a -12.49% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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