The continuing sell-off of high-growth speculative stocks has been rough for investors. However, a subsector that seems to be holding on to its gains quite well is the crypto-currency industry and its associated miners. Marathon (NASDAQ: MARA) is one such company. MARA stock has been one of the best-performing stocks of 2021.
The stock started the year at $12 and rocketed more than 5x to a high of $56. The price has since corrected since then, and MARA stock currently trades at around $21.
Regardless of what happens to the stock in the short term, I believe Marathon is a compelling long-term investment.
In April 2021, the company produced 162.1 newly minted bitcoins. This is more than a 3x increase from its operations in January where it minted 50.4 BTC. I can only see the company’s operations expanding in the future.
At the end of April, Marathon’s mining fleet was approximately 12,084 miners, generating bitcoins at 1.29 EH/s. This hashrate is an 82% month-on-month increase and translates to nearly 7 bitcoins per day. The company saw an increase of 5,288 new miners during this period. Marathon’s mining rigs continue to grow as Bitmain recently delivered approximately 13,032 S-19 Pro ASIC miners.
A Closer Look at MARA Stock
The company is projecting a mining fleet of approximately 103,120 miners by the end of the first quarter of 2022. These projections are secured as they are composed of previously purchased miners.
Given how fast the company is able to scale up its mining operations, I am confident that Marathon will be able to hit its target of generating 10.37 EH/s. The way it has been able to efficiently scale its mining operations has been truly impressive.
Given Marathon’s current bitcoin hashrate, it is easy to calculate roughly how many bitcoins the company will be making at the end of the forecast period.
Using my back-of-the-envelope calculations, Marathon should be making 1,000- 1,300 bitcoins per month by Q1 2022. At a bitcoin price of $50,000, (and in the expectation that that’s a good average price this year) that translates to $600 million annually on the low-end of the projections.
At the current market cap of $3.35 billion, the valuation of the company at scale isn’t that bad. Critics may point to Marathon being overvalued as it is trading at a ridiculously high P/S multiple. However, the stock market is forward-thinking and therefore we should use future revenue to determine valuation.
Assuming the company hits its projections, based on my calculations, the company would have a P/S ratio of 5.85x. Marathon’s track record of execution in the deployment of mining rigs makes me confident that it can hit these projections.
Betting It All on the Future of Bitcoin
Despite the growing popularity of other crypto coins, bitcoin is still the premier cryptocurrency.
Marathon is going all-in on bitcoin. The company is holding on to all the bitcoin that it has mined so far and has even purchased 4,812.66 BTC in January.
In other words, rather than holding cash in its balance sheet, Marathon is opting to hold bitcoin as its liquid asset.
This isn’t worth much in terms of dollar value when compared to the company’s market cap. However, this is a strong signal from the company’s management on the value of bitcoin as an asset and its potential for appreciation in the future.
MARA Stock: Investor Takeaway
A bet on MARA stock is a bet on bitcoin.
As a miner, Marathon gains operating leverage from any price appreciation on bitcoin. In other words, a 1% increase in the price of bitcoin will result in a much higher percentage increase in Marathon operating income.
As the premier North American bitcoin mining firm, I believe MARA stock should have a place in a high-growth portfolio.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.