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Why Canaan Stock Plummeted 32.9% in May

By Keith Noonan - Jun 5, 2021 at 12:28PM

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Despite volatility, the cryptocurrency mining stock is still up roughly 85% year to date.

What happened

Shares of Canaan (CAN 4.18%) sank 32.9% in May, according to data from S&P Global Market Intelligence. The crypto mining specialist's stock fell in response to a sell-off for Bitcoin and moves from the Chinese government to limit cryptocurrency mining and adoption in the country. 

CAN Chart

CAN data by YCharts

Tesla CEO Elon Musk delivered a shock to the broader cryptocurrency early in May by stating that the company would no longer accept Bitcoin as payment for vehicles due to concerns about the negative environmental impact of mining. Making matters worse, China then announced new regulations to tamp down on mining and trading platforms in the country, and cryptocurrency stocks once again sold off in response.

Canaan also announced on May 5 that it had closed its direct sale of new American depositary shares. The sale raised $170 million in funding, but it also had the effect of diluting the stock for previous shareholders. 

A Bitcoin logo.

Image source: Getty Images.

So what

Canaan is based in China, but the country's new cryptocurrency regulations probably aren't an insurmountable hurdle for the business. The company will still be able to sell its Bitcoin mining machines, and there's a sizable market for its hardware outside of the domestic market. Many crypto mining farms operating in China are also already in the process of relocating. 

Now what

Canaan stock has surged early in June's trading. The company's share price is up roughly 30.5% in the month so far. 

CAN Chart

CAN data by YCharts

After May's tumultuous trading, Bitcoin's price has been much more stable over the last week, and crypto-mining stocks have rallied in response. Canaan stock also appears to have gotten a boost from its first-quarter earnings results, which it published on June 1, and the company now has a market capitalization of roughly $1.9 billion.

The company reported non-GAAP (adjusted) net income of $21.9 million on revenue of $61.5 million in the period. Those results show that the business can post very strong margins amid favorable operating conditions, and the company actually expects that mass production for its next-generation Bitcoin mining machines will allow it to increase yields and deliveries substantially over what it posted in the first quarter.

If you're bullish on Bitcoin, the mining specialist's stock could warrant a closer look. However, most investors should still probably proceed with caution. 

Keith Noonan has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Canaan Inc. Stock Quote
Canaan Inc.
CAN
$4.24 (4.18%) $0.17
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Tesla, Inc.
TSLA
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Bitcoin
BTC
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