Marathon Digital Holdings (NASDAQ:MARA) is one of the new generation of Bitcoin mining stocks that have sprung up alongside the growth of the cryptocurrency industry.
Sitting at the intersection of the traditional stock market and the much more volatile crypto space, companies like Marathon provide investors with a somewhat unique opportunity.
However, these companies are also difficult to value due to the high volatility of cryptocurrencies, like Bitcoin. So, is Marathon Digital a buy, sell or hold?
Is Marathon Digital Holdings a Good Stock to Buy?
In Q2, Marathon reported a net loss of $0.13 per share, significantly better than the $1.94 per share it lost in the year-ago quarter.
Revenues improved drastically to $81.8 million, driven largely by the sale of some 63 percent of the Bitcoin produced during the quarter.
The company’s hash rate, a measure of the computing power needed to mine Bitcoin, improved by 54 percent year-over-year.
Impressively, Marathon earned some 3.3 percent of all the Bitcoin produced in the Q2 period.
Bitcoin production at Marathon has also skyrocketed over the past year. In a production report for September, the company reported that it had produced 1,242 Bitcoin during the month and 8,610 YTD.
On a year-over-year basis, September’s numbers represented a 245 percent increase in production. With a new facility expected to come online sometime in October, it’s likely that Marathon will continue to increase its production into the foreseeable future.
Marathon Is Directly Tethered To Bitcoin
Unfortunately, it’s very difficult to predict what the future holds for Bitcoin itself. While extreme bulls like ARK’s Cathie Wood tout price targets of up to $1 million per Bitcoin within the decade, there’s also a strong case to be made that Bitcoin’s best days may be behind it.
With the argument that Bitcoin could act as a new hedge against inflation largely disproven over the past two years and little day-to-day utility for the currency, there are no guarantees of another major crypto run.
Given how much of its Bitcoin Marathon is retaining in hopes of such a run, this fact makes the stock inherently speculative and high-risk.
Another downside for Marathon is its net income. Over the last 12 months, the company has lost over $686 million and reported a total net margin of -284 percent.
While Marathon has pared its losses significantly, the company’s lack of existing earnings increases the risk for investors.
What Is the Future of Marathon Digital Holdings?
Over the coming 12 months, analysts expect Marathon shares to reach a median target price of $11.50. This would imply an upside of 46.5 percent from the most recent price of $7.83.
The consensus rating for the stock is a Hold, suggesting that the stock may not be attractive enough to buy at this time.
Going forward, Marathon’s strategy appears to involve holding large amounts of Bitcoin in what it describes as its Bitcoin treasury.
While this strategy could pay off if Bitcoin prices rise significantly, it also exposes the company to the volatility risks inherent to cryptocurrencies.
If the price of Bitcoin drops, the company will almost certainly see further losses stack up on its balance sheet.
What Will MARA Be Worth in 2025?
Because of the high volatility inherent to Bitcoin and the degree to which Marathon’s share price is tied to the price of the digital currency, it’s quite difficult to make accurate predictions about the stock’s long-term future.
If it hits the $11.50 price target set by analysts in late 2024, it’s conceivable that MARA shares could rise to the $13-14 range by 2025 if supported by further increases in the price of Bitcoin.
It should once again be noted, however, that Marathon’s close tie to Bitcoin prices makes this eventuality quite uncertain.
How High Will Marathon Digital Holdings Stock Go?
Marathon’s long-term performance will likely more or less track the value of the Bitcoin it holds and produces.
Assuming Bitcoin were to rise from its current price of about $28,700 to regain its historical high of around $64,400, therefore, Marathon shares would likely rise to around $17.60.
This, of course, may not fully account for other factors such as changes in debt load, share dilution or the conversion of existing Bitcoin reserves into cash that could occur in the interim.
Is Marathon Digital Holdings Stock Overvalued?
Looking to Marathon’s valuation metrics, there are several indications that the stock could be priced at a premium to fair value.
To begin with, Marathon trades at 10.3 times sales, a rather high multiple even for a growth company. The stock is also priced at 2.4 times book value.
In light of Marathon’s negative margins, the stock seems to trade at a premium that is not justified by its ability to generate earnings in the near future.
A more fundamental issue when valuing Marathon is establishing the fair value of its Bitcoin reserves. Traditional value investing holds that Bitcoin is intrinsically worthless as an investment, as it does not have the ability to generate cash flows.
This view, echoed by the likes of Warren Buffett and the Bank of England, would effectively imply that Marathon’s Bitcoin reserves have no intrinsic value. This leaves only the cash generated from the sale of Bitcoin, which to this point has been used only to fund operations and not to produce positive earnings.
A final problem for the company is its debt load. At 1.24 times its total equity, Marathon’s use of debt to avoid selling its Bitcoin holdings could put the company on difficult financial ground. Taking this and the factors discussed above into account, Marathon is very likely elevated from a traditional value investing perspective.
With that said, we can run a traditional DCF analysis. A discounted cash flow forecast places fair value of Marathon at $7.37 per share, implying it is 5.7% overvalued.
Is Marathon Digital Holdings a Buy Right Now?
Although Marathon certainly has the potential to rise if Bitcoin prices follow the expectations of crypto bulls, there’s a very strong case to be made that the stock is intrinsically overvalued. This, combined with the volatility that the company’s Bitcoin holdings are prone to, likely makes it too risky for investors with anything short of highly bullish long-term views on the crypto market.
Another reason for investor caution is the company’s willingness to dilute shares in order to manage its debts. Recently, the company announced the issuance of over 26 million new shares that would be exchanged for convertible notes previously due in 2026. If management continues to rely on issuing shares to address its debt obligations, current shareholders could see their ownership stakes dwindle going forward.
Overall, Marathon does not appear to be a good stock to buy now. Between its high debt load, the inherent uncertainty of its Bitcoin holdings and the risk of further share dilution, Marathon seems to present too many risks to be viewed as a reliable investment.
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