Please ensure Javascript is enabled for purposes of website accessibility

Why The9 Limited Stock Soared Today

By Jon Quast - Feb 16, 2021 at 12:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This electric-vehicle, video game, Bitcoin-mining company is now going to mine Filecoin as well.

What happened

Shares of The9 Limited (NCTY -6.62%) soared on Tuesday after the company announced the purchase of equipment for mining a cryptocurrency called Filecoin. It's the second big mining announcement the company has made this year, and investors appear to like this new direction for the company. As of noon EST, The9 stock was up 16%.

So what 

According to the press release from the company, The9 signed a $10 million agreement to buy mining equipment for Filecoin. The company said it's already purchased and deployed some. However, how much it's already spent wasn't disclosed. The9 said it still had remaining purchase obligations under the agreement it signed, and it will make more purchases at a later date.

A smartphone projects an image of various cryptocurrency logos.

Image source: Getty Images.

Earlier this year, The9 stock started soaring when the company announced it was getting into Bitcoin mining. The company has issued press releases outlining multiple purchase agreements for mining equipment (remember, different cryptocurrencies often require separate mining setups). On Feb. 8, The9 stated its deals would give it 36,000 Bitcoin mining machines, resulting in a hashrate (a metric used by cryptocurrency miners -- think of it like computing power) of 800 peta-hashes (P/H) per second -- not a top player, but still a respectable hashrate. 

Now what

In my opinion, today's move is overdone. The deal to mine Filecoin is just a $10 million deal. But The9's market capitalization increased by around $60 million today. Perhaps some of the move is attributable to the company's Bitcoin operations, especially since Bitcoin briefly touched a record high above $50,000. But this is still a stock I think investors should be cautious with.

NCTY Chart

Three-month data for The9 stock and the S&P 500. NCTY data by YCharts

When reading financial news, it's important to approach things with a healthy dose of skepticism and remember not every piece of news is actionable. For The9, it's interesting how broad the company's focus is. It has announced deals to make electric vehicles in China (in 2019), deals with video game publishers, and now mining cryptocurrency. But as of its most recent annual report, it only generated revenue through video games, and that business was struggling. 

To be sure, the announcements for mining cryptocurrencies has helped The9 stock. And that's a good thing considering it was facing the possibility of being delisted for not having a high enough market value. It should be fine now. That said, I don't think there's anything wrong with waiting for this video game company to prove it's up to the challenge of profitably mining cryptocurrency before even considering a long-term investment.

This article represents the opinion of the writer(s), who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The9 Limited Stock Quote
The9 Limited
NCTY
$1.36 (-6.62%) $0.10
Bitcoin Stock Quote
Bitcoin
BTC
$29,385.49 (-2.83%) $-856.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.