Cryptocurrency investors are increasingly gravitating toward crypto mining plays today, as cryptocurrencies see prices continue to rise amid incredible investor demand. Indeed, investors in Marathon Digital (NASDAQ:MARA) stock have done quite well for themselves in this environment.
Shares of MARA stock have provided investors with staggering returns of more than 8,000% over the past year. On a year-to-date basis, these returns are still “not bad,” considering investors are up by 245%.
Marathon happens to be one of the largest Bitcoin (CCC:BTC-USD) self-mining companies in North America. And if the company continues on its growth trajectory, it could in fact be one of the largest players globally in a very short amount of time.
Accordingly, there’s a tremendous amount of interest in this stock right now. The leverage miners have to cryptocurrency prices makes for an intriguing high-risk, high-reward play in this space. (As if crypto investing wasn’t high-risk enough for investors as is.)
Here’s why investors are jumping into Marathon right now.
Bitcoin Mining Results Off the Charts
On May 3, Marathon announced some pretty decent operational results.
Scratch that, these numbers were downright incredible.
The company reported an increase in its active mining fleet’s hash rate of approximately 82% during the month of April. This growth was fueled by the installation of 5,288 new miners. These installations nearly doubling the company’s active fleet to just over 12,000 mining machines.
Accordingly, the company reported its daily average Bitcoin mining rate increase to almost 7 Bitcoins per day. This was up from just 3.2 Bitcoins per day a month earlier.
The company’s Bitcoin holdings were expanded by 162.1 this past month, up from 97.9 in March, 43.4 in February, and 50.4 in January. The fair market value of Marathon’s holdings, on May 1, totaled more than $300 million.
Approximately 354 newly minted Bitcoins were produced year-to-date. At an average price of $55,000 per Bitcoin (at the time of writing), this comes in at revenue just shy of $20 million for the past four months.
Annualizing this out gets us to $60 million in revenue, for a company with a market capitalization of $3.6 billion. That’s approximately 60x sales, quite a steep valuation indeed.
Here’s why this valuation may not be that crazy after all.
Investors in MARA Stock Believe This Growth Can Continue
The real question investors in MARA stock have right now is, can this company not only keep up this kind of growth, but can it accelerate this growth over time?
After all, Marathon has set some pretty bold targets. The company is aiming to have more than 103,000 miners online by the end of the first quarter of 2022. The company anticipates this could result in daily production of between 55 and 60 Bitcoins per day.
At current Bitcoin prices, this would provide well more than $1 billion in revenue per year. In this context, the company’s current valuation doesn’t seem that out of line.
However, Marathon is still a ways away from this target. Assuming a lower-end target of 55 Bitcoins per day, a current production rate of 7 Bitcoins per day, and a year to get there (let’s round up), Marathon still needs to increase its hash rate at a CAGR of 685%.
Now, considering Marathon just announced it had grown its mining capacity by 82% this past month, perhaps these targets are achievable. However, there still remains a lot of installations that need to take place between now and then to make this goal a reality.
At just under 5,300 installations this past month, Marathon would need to pick up the pace to hit its goal of having 103,000 miners installed by the end of Q1 2022. To install 91,000 machines in 11 months, the company’s installation rate needs to average more than 8,200 installations per month.
Granted, Marathon has been doing its part in ramping up its mining operations. However, the question of where Bitcoin prices will be a year from now is another question investors need to ponder.
This is a company that looks to be on the right trajectory to hit the audacious goals its set for itself. It’s not outside of the realm of reason to suggest Marathon could be printing more than a $1 billion of revenue next year.
However, as mentioned, this is a high-risk, high-reward play. Accordingly, investors should take caution when considering how much exposure to take with such stocks today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.