Is it too late to buy Marathon Digital stock?

marathon digital‘s (NASDAQ:MARA) The stock price has increased approximately 640% over the past 12 months.The bulls hurried home Bitcoin (Cryptocurrency: BTC) As crypto prices stabilized and recovered from a steep drop in 2022, miners took center stage. But after that massive rally, is it too late to buy Marathon stock?

How did Mr. Marathon become a pure Bitcoin miner?

Marathon was once a small patent holding company. But in 2020, the company ordered tens of thousands of top-tier ASIC miners and rebranded itself as a pure Bitcoin miner.

Many investors were initially skeptical of the plan, saying it sounded like a questionable way to profit from the surge in market interest in Bitcoin. Nevertheless, Marathon expanded consistently over the next three years, becoming the world’s largest Bitcoin mining company with approximately 184,400 active miners as of December 1st. Its closest competitors are riot platformoperated a fleet of 112,944 active miners at the end of November.

Marathon generated an average of 38.4 BTC every day in November. This represents a 144% increase over the previous year. Riot generated just 18.4 BTC each day, an increase of just 6% from the previous year.

Marathon is growing its business at a much faster pace than Riot. Over the past year, the company has opened two new factories, launched a new joint venture in Abu Dhabi, and in mid-December agreed to purchase multiple BTC mines for $179 million. These bold moves are likely to consolidate large parts of the market and widen Riot’s lead.

How fast is Marathon growing?

Marathon derives most of its revenue from BTC mining. In addition, we regularly sell mined BTC to increase our cash holdings. At the end of Q3 2023, the company had $101 million in cash and $287 million in BTC on its balance sheet. This marked the first time that the company’s total cash and Bitcoin holdings exceeded its total debt.

With the introduction of the first miner, Marathon’s revenue jumped from $4 million in 2020 to $150 million in 2021. However, 2022 revenue fell to $118 million as BTC prices fell in response to rising interest rates and other macro headwinds.

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Looking ahead, analysts expect Marathon’s revenue to more than triple to $359 million this year due to a recovery in BTC prices and a significant expansion of its mining operations. They also expect its revenue to grow another 47% in 2024 and 42% in 2025. However, we should take those estimates with a bit of a grain of salt, as they are firmly tied to BTC’s volatile price.

What is the biggest weakness of running a marathon?

Although Marathon’s revenue has soared, it has not been consistently profitable under generally accepted accounting principles (GAAP) and has taken on significant debt to expand its mining operations. The company ended its most recent quarter with a manageable debt-to-equity ratio of 0.3, but leverage could continue to rise as it brings on new miners and plants.

Marathon prices are also starting to heat up a bit after a year-long rally. The company is valued at $6.1 billion, trading at about 12 times next year’s sales. Riot is growing at a slower rate than Marathon, but next year’s sales are only 8 times higher.

Another pressing challenge is the impending Bitcoin halving, where the reward for mining BTC will be halved every four years. The last BTC halving took place in 2020, so the next halving should occur in the first half of 2024. That event will likely push up the market price of BTC, but it will also require Marathon to deploy more miners to mine the same amount of BTC.

Bitcoin’s halving will coincide with the end of the “crypto winter” and may once again ignite the flames beneath Bitcoin’s price. If this happens, the rise in BTC prices should offset the increase in mining costs, significantly increasing the cash value of BTC reserves. However, if the price of BTC does not rise, mining costs will rise and losses will increase.

If you’re a BTC bull, it’s not too late to buy Marathon.

Marathon Digital remains a highly speculative stock, but if you believe Bitcoin prices will reach new highs in the coming years, there may still be room to play. I personally prefer buying Bitcoin directly on the open market rather than investing in a marathon, capital-intensive business, but this mining stock will still hold BTC in the long run as it expands its operations. may outperform.

Should you invest $1,000 in Marathon Digital now?

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Leo Sun has no position in any stocks mentioned. The Motley Fool has a position in and recommends Bitcoin. The Motley Fool has a disclosure policy.

Is it too late to buy Marathon Digital stock? Originally published by The Motley Fool