On Aug. 6, Marathon Patent Group (NASDAQ:MARA) stock hit a 52-week high of $5.25. However, since then profit-taking has kicked in and MARA stock now hovers at $2.50. Despite the recent decline, so far in the year the shares are up about 170%.
Las Vegas, Nevada-based Marathon mines cryptocurrencies, with a focus on the blockchain ecosystem. It currently operates one mining facility in Quebec, Canada. As I write this, the bitcoin price is hovering at $11,100, after rising for most of the summer. And generally, Marathon shares have been riding on that cryptocurrency wagon, though MARA stock did peak before bitcoin in August.
Today, I’ll take a closer look at what to expect from MARA stock in the rest of the year. I believe investing in Marathon shares would be a highly speculative activity at this point.
How the Company Makes Money
On June 30, Marathon released second-quarter results. Its total revenue, which was based on cryptocurrency mining operations, was $286,161, compared to $355,765, a year ago. On the other hand, quarterly operating expenses were $2,077,394, compared to $1,096,362 last year. Finally, net loss stood at $2,161,196. In Q2 2019, the net loss was $565,880.
Although these numbers were not good, Marathon’s latest 10-Q gave even more bad news. The company said “Based on the Company’s current revenue and profit projections, management is uncertain that the Company’s existing cash will be sufficient to fund its operations through at least the next twelve months from the issuance date of the financial statements, raising substantial doubt regarding the Company’s ability to continue operating as a going concern.”
I believe the group has laid out a substantial case for not investing in MARA stock. InvestorPlace‘s Matt McCall has recently written in detail about the poor fundamental metrics of MARA stock. He concludes, “Most alarming is the lack of financial stability. It has a very weak balance sheet, encumbered by debt relative to its cash position. Further, its Altman Z-Score ranks in negative territory, indicating deep distress. Adding to the pain, its three-year revenue growth rate is sharply negative.”
What Else Could Derail MARA Stock?
Crypto mining is a capital-intensive business. In recent research led by Oscar Delgado-Mohatar by the Department of Computer Science, Autonomous University of Madrid, Spain, the authors highlight, “According to our calculations, June 23rd 2018 was the date at which bitcoin mining was no longer worth continuing for amateur miners outside China, while November 25th 2018 was the cutoff date for professional miners using the most efficient existing devices. We predict increased centralization of professional mining facilities in China.”
In June 2018, Bitcoin price was hovering around $7,000. Now it is around $11,100. Therefore, it’d be easy to assume the cost structure is likely to be more favorable for Marathon Patent Group. However, its recent quarterly results have not shown that the company has benefited from the increase in the price of Bitcoin or other cryptocurrencies. Its revenue and operating expenses do not match.
Investors should also be worried about the company’s valuation levels. Its price-sales ratio stands at 21.5. That number is close to the P/S ratio of 24.3 of Nvidia (NASDAQ:NVDA), a darling of Wall Street. By comparison, the S&P 500 index has a P/S sales ratio of 2.4.
Are you an investor who also pays attention to technical charts? Short-term price action is suggesting a move below $2.50 is possible. If you currently hold profits in MARA stock, you may want to take money off the table.
Most analysts have an overall bullish view on the future of blockchain technology. However, crypto-mining may not be an appropriate venture for a public company with high operating costs. Investors should not rush to commit new capital into MARA stock as it may not be able to have the financial means to survive as a going concern a lot longer.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.