This Bitcoin Mining Stock is a Buy Now, Here's Why

Barchart · 10/17 09:29

Strategic shifts and operational restructuring can significantly impact a company’s stock performance and investment appeal in the cryptocurrency space, particularly when it comes to Bitcoin mining. MARA Holdings (MARA), formerly known as Marathon Digital, is a leading Bitcoin (BTCUSD) miner that has recently undergone significant changes in its business model. As the company shifts towards a more vertically integrated structure, moving from third-party hosting services to owning and operating its own sites, investors are taking note of the potential for increased profitability and growth. This strategic shift has prompted Cantor Fitzgerald to assign MARA an “Overweight” rating, reflecting the brokerage firm’s confidence in the company’s ability to capitalize on this operational transition.

While MARA stock remains in the red on a year-to-date basis, this underperformance could present an opportunity for long-term investors. Analysts remain optimistic, with a consensus “Moderate Buy” rating on the stock, indicating that the current price could offer an attractive entry point. As the company continues to execute its vertical integration strategy, there is room for significant operational improvements that could drive future growth.

With robust fundamentals, a promising outlook, and analyst support, MARA stands out as a Bitcoin mining stock poised for growth. Here’s why it might be time to add it to your portfolio.

About MARA Holdings Stock

MARA Holdings (MARA) is a digital asset technology company that specializes in mining digital assets, focusing on the bitcoin ecosystem in the United States. With a market capitalization of about $5.1 billion, it ranks as one of the largest Bitcoin mining companies in North America.

Despite rising Bitcoin prices in 2024, MARA stock has underperformed, falling approximately 25% on a year-to-date basis.

Recent News for MARA Stock

On Oct. 2, MARA Holdings announced that it had boosted its energized hash rate to 36.9 EH/s in September, marking a month-over-month growth of 5%. During the month, block wins increased by 6% from August and BTC production rose 5% to 705 BTC, with current holdings reaching nearly 27,000 BTC. Notably, the company did not sell any BTC in September.

“We remain on track to reach our target of 50 EH/s by the end of 2024. Our team continues to quickly energize our owned sites and operate them more efficiently than originally planned. The conversion of our Granbury data center from air-cooled to MARA’s immersion containers is progressing on time and we expect this work to be completed before year-end,” said Fred Thiel, MARA’s chairman and CEO.

On Sept. 5, MARA Holdings announced that Janet George and Barbara Humpton were appointed to its board of directors and named current board member Doug Mellinger as lead independent director, effective Sept. 1. Ms. George and Ms. Humpton succeeded Kevin DeNuccio and Said Ouissal, respectively, who stepped down from the board as part of a planned transition.

How Did MARA Holdings Perform in Q2?

MARA Holdings reported its financial results for the second quarter of fiscal 2024 on Aug. 1. Second-quarter revenue rose 78% year-over-year to $145 million, missing Wall Street’s expectations by $11.93 million. The revenue growth was primarily driven by an increase in the average price of bitcoin, which was somewhat mitigated by a reduction in bitcoin production. Notably, the company produced 2,058 BTC during the quarter, marking a 30% decrease year-over-year - primarily due to the halving, an increased global hash rate, and the continued impact of unexpected equipment failures at third-party operated sites and transmission line maintenance. MARA produced an average of 22.9 Bitcoin per day during the quarter, down from 32.2 Bitcoin per day in the same period last year.

MARA’s net loss widened to $199.7 million, or $0.72 per share, from last year's $9 million, or $0.07 per share, due to an unfavorable fair value adjustment of digital assets following the adoption of a new accounting rule. The bottom line missed estimates by $0.63 per share. Moreover, adjusted EBITDA declined to a loss of $85.1 million, down from a gain of $35.8 million in the second quarter of 2023.

The company successfully integrated three operational sites totaling 590 megawatts over the past six months. As a result of these acquisitions, MARA temporarily provided hosting services to existing customers, generating revenue of $9 million. The company anticipates that this revenue will decrease in the coming quarters as it assists current site tenants with their transition plans and uses that space for its own growth. With that, MARA currently owns and operates around 54% of the 1.1 gigawatts of power across its diversified portfolio of digital asset computing. Management stated that the company will progressively increase the proportion of owned and operated sites within its fleet over time and anticipates significant cost savings as this transition occurs.

MARA reaffirmed its 2024 hash rate guidance of 50 exahashes per second (EH/s). As of Q2, its installed hash rate was 31.5 EH/s, a 78% increase year-over-year.

It’s also worth noting that management announced their plan to reinstate their BTC “HODL” strategy. Under this strategy, the company mines Kaspa at an 80% margin and then sells the coin to cover mining and operating expenses. MARA finished the quarter with 18,488 BTC on its balance sheet, and later acquired an additional $100 million worth of BTC.

“We recently … adopted a full HODL approach to retain all BTC going forward, reflecting our confidence in the long-term value of BTC and our belief that it is the world’s best treasury reserve asset,” said Fred Thiel, MARA’s chairman and chief executive officer.

As BTC mining becomes less profitable, MARA Holdings is actively exploring additional opportunities, venturing into related areas such as data center cohosting with AI inferencing, infrastructure integrations, and collaborating with municipalities to provide heat generation from BTC mining. For example, MARA’s international division initiated a 2-megawatt pilot project in Finland, using recycled heat to supply energy to 11,000 residents. Integrating digital asset compute with district heating has the potential to reduce carbon emissions, lower costs, and decrease waste heat. Management expects to expand capacity to 4 megawatts by the end of the year.

Is MARA Stock Overvalued?

Analysts tracking the company anticipate its net loss to be $1.05 in fiscal 2024, in contrast to a net profit of $0.17 in the previous year. At the same time, analysts expect MARA's full-year revenue to grow 69.46% year-over-year to $656.66 million.

Assessing MARA’s valuation, its trailing twelve-month (TTM) price-to-sales ratio stands at 7.08x, which is above the sector median of 3.02x, but significantly below its own five-year average of 60.66x. The same trend can be observed in its EV/Sales TTM multiple. MARA is currently trading at 8.98x on this basis - higher than the sector median of 3.14x, but notably lower than its five-year average of 117.33x.

Considering this, MARA stock does not look too expensive at current levels.

Options Market Sentiment on MARA Holdings Stock

Looking at the option chain for November 15, 2024, the $18.00 CALL option has a bid/ask spread of $2.10/$2.12, while the $18.00 PUT option has a spread of $2.56/$2.50. Remember, this option strike is nearest to the current stock price. We can now calculate the expected price movement by using the midpoint prices of these options:

2.54 (18.00 put) + 2.11 (18.00 call) = 4.65/17.44 = 26.7%

Using the long straddle strategy and based on current prices, the options market suggests that MARA stock could see a movement of around 27% up or down by the November options expiration from the $18.00 strike price. That would place the stock in a trading range of $12.78 to $22.09.

Notably, at the $18.00 strike price, call options outnumber puts by a ratio of about 4.4 to 1, with 7,075 open calls versus 1,604 open puts. This indicates a bullish sentiment in the options market, suggesting a higher likelihood of the stock appreciating.

What Do Analysts Expect For MARA Stock?

On Oct. 10, Cantor Fitzgerald analyst Brett Knoblauch began coverage of MARA Holdings with an “Overweight” rating and a price target of $21, as the bitcoin mining company continues to verticalize its business.

MARA previously depended on third parties to host its machines, which was considered a “sub-optimal way to play Bitcoin.” But it has since “changed course and is now focused on owning and operating Bitcoin mining infrastructure, which we believe will allow MARA to meaningfully reduce its all-in cost to mine,” the analyst wrote in a note.

Cantor Fitzgerald also anticipates that MARA will benefit from potential appreciation in bitcoin prices, and Knoblauch thinks “the market under-appreciates profitability improvements MARA will deliver as it verticalizes the business, making shares attractive at current levels.”

Overall, analysts have deemed Mara Holdings stock a “Moderate Buy.” Of the 10 analysts in coverage, five recommend a “Strong Buy,” four suggest a “Hold,” and one has a “Strong Sell” rating. The average target price for MARA stock is $21.55, indicating an upside potential of about 25% from current levels.

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.