Is Marathon Digital Holdings a Buy Under $40?

Las Vegas-based digital asset technology company Marathon Digital Holdings, Inc. (MARA) mines cryptocurrencies, focusing on the blockchain ecosystem and the generation of digital assets in the United States. MARA’s performance has been closely tied with the bitcoin price movements. MARA’s shares have gained 252.7% in price over the past year and 265.2% year-to-date. The share price rally could be attributed to surging bitcoin prices this year. However, the crackdown by Chinese authorities on bitcoin mining, and the Biden administration’s efforts to regulate the use of cryptocurrency had negatively impacted MARA’s momentum.

The bitcoin miner’s shares plunged 27% in price on November 15 after the company said in a 10Q filing that it received a subpoena from the U.S. Securities and Exchange Commission (SEC) to produce documents and communications concerning its Hardin, Montana, data center facility. The SEC is investigating whether the company has violated federal securities law. MARA had entered into a series of agreements with multiple parties to build a data center in Hardin in October 2020.

Over the past month, the stock has slumped 26.8% to close its last trading session at $38.13. The stock is currently trading below its 50-day moving average. It is trading 54.3% below its 52-week high of $83.45. Also, the stock is highly volatile due to its link with the performance of  bitcoin, making it a risky bet we think. MARA has a 4.72 beta.

Click here  to check out our Cryptocurrency Industry Report 

Here is what could shape MARA’s performance in the near term:

Lofty Valuation

MARA’s 173.32 forward P/E is 471.9% higher than the 30.30x industry average. In terms of forward EV/Sales, MARA is currently trading at 19.34x, which is 357.3% higher than the 4.23x industry average. Also, MARA’s 20.61x forward Price/Sales is 398.7% higher than the 4.13x industry average.

Poor Profitability

MARA’s gross profit and net income margins of negative 93.51% and 57.03%, respectively, are substantially lower than the 49.42% and 6.40% industry averages. Furthermore, negative 15.20%, 7.97%, and 19.87% respective ROE, ROA, and ROTC compare with the  8.20%, 3.62%, and 4.97% industry averages.

Lawsuits

Shareholder rights law firm Robbins LLP informed investors that a class action was filed on behalf of all persons and entities that purchased MARA shares between October 13, 2020, and November 15, 2021, alleging violations of the Securities Exchange Act 1934. The complaint concerns its joint venture with Beowulf Energy LLC to deliver low-cost power to MARA’s bitcoin mining operations and build a data center in Hardin, Montana. The lawsuit alleges that the defendants made false and misleading statements and failed to disclose that the joint venture implicated potential regulatory violations, including U.S. securities law violations. On November 15, 2021, MARA revealed that it received a subpoena from the SEC to produce documents and communications related to the venture. Several other law firms are investigating the company on similar grounds.

POWR Ratings Reflect This Bleak Prospects

MARA has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an F  grade for Quality, which is consistent with its lower-than-industry profit margins.

MARA also has an F grade for Value. Its stretched valuations justify this grade.

Of 124 stocks in the D-rated  Financial Services (Enterprise) industry, MARA is ranked #116.

Beyond what I have stated above, you can also view MARA’s grades for Sentiment, Growth, Momentum, and Stability here.

View the top-rated stocks in the Financial Services (Enterprise) industry here.

Bottom Line

As of December 1, MARA’s total bitcoin holdings stood at approximately 7,649.1 with a fair market value of approximately $437.4 million, with its mining fleet of 31,000 active miners. The stock has gained significantly over the past year. However, ongoing lawsuits and regulatory scrutiny have pummeled its shares. Also, considering its lofty valuation and high beta, we think the stock is best avoided now.

How Does Marathon Digital Holdings, Inc. (MARA) Stack Up Against its Peers?

While MARA has an overall POWR Rating of D, one might want to consider investing in the following Financial Services (Enterprise) stocks with an A (Strong Buy) rating: Forrester Research, Inc. (FORR), Consumer Portfolio Services, Inc. (CPSS) and Donnelley Financial Solutions, Inc. (DFIN).

Note that DFIN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Click here  to check out our Cryptocurrency Industry Report

MARA shares were trading at $39.48 per share on Monday morning, up $1.35 (+3.54%). Year-to-date, MARA has gained 278.16%, versus a 28.23% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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