Marathon Digital Is Gearing for Another Run Up in the Near Future

In April 2020, Marathon Digital (NASDAQ:MARA) stock was trading at 45 cents. As Bitcoin (CCC:BTC-USD) started surging in the second half of fiscal year 2020, MARA stock also went ballistic. At the beginning of this April the stock touched an all-time high of $57.7.

Profit-taking was entirely likely after the massive rally. The stock currently trades at around $31.

I believe that MARA stock is worth considering at current levels. Over the next 12-18 months, the stock is likely to trade at significantly higher levels.

It’s also clear from the above stock price action that the business outlook for Marathon Digital depends on Bitcoin price.

At the beginning of the year, JP Morgan (NYSE:JPM) opined that Bitcoin price could rise to $146,000 in the long-term as it competes with gold.

In a survey of Goldman’s institutional clients, 76% clients believe that Bitcoin price can touch $100,000 by the end of the year. There are more optimistic projections. Ark’s Cathie Wood believes that Bitcoin price can potentially touch $400,000 in the long-term.

My point is that the bull-run seems to be far from over for Bitcoin. If this holds true, it’s just the beginning of the rally for MARA stock. Even after a surge of over 8,000% in the last one-year.

A Closer look at MARA Stock

Specific to Marathon Digital, the company is just at an early stage of growth.

The company’s active mining fleet was approximately 12,084 miners at the beginning of May. By the first quarter of 2022, the company expects to increase the number of miners to 103,120. This is likely to represent 6.4% of global Bitcoin hash rate.

As new miners are deployed, the company’s Bitcoin production is already surging. In January, the company mined 50.4 Bitcoin. In April, the number of Bitcoins mined increased to 162.1.

Once all miners are deployed (Q1 2022), the company expects to mine 55-60 Bitcoins per day. At a price of $60,000, this would imply Bitcoin revenue of $103 million per month.

Further, it would imply an annualized revenue of $1.2 billion.

Clearly, Marathon Digital is positioned for stellar growth. This explains the reason for the stock remaining resilient at higher levels.

Another important point to note is that the company currently holds 5,292 Bitcoins. Assuming a daily mining capacity of 55 Bitcoins, the company can mine 20,075 Bitcoins on an annual basis.

Assuming an optimistic scenario where Bitcoin touches $100,000, the company annual production would be valued at $2 billion.

MARA stock currently trades at a market capitalization of $3.6 billion. It’s worth noting that the company last sold Bitcoin in October 2020. As Bitcoin trends higher, the market value of assets will swell.

Therefore, valuations seem attractive considering the amount of Bitcoin the company is likely to hold in the next 12-24 months.

It’s also worth noting that the company expects to mine Bitcoins at an average cost of $4,541/BTC. As the price of Bitcoin surges, mining profit will at very attractive. The company has already partnered with Beowulf for steady supply of low-cost electricity.

Concluding Views

Marathon Digital is well positioned to ramp-up cash and crypto asset holdings in the next few years. I believe that financial flexibility will give the company scope for expansion beyond crypto mining.

HIVE Blockchain (OTCMKTS:HVBTF) is primarily involved in the mining of Ethereum (CCC:ETH-USD) and Bitcoin. In March, the company announced a strategic partnership and share swap agreement with DeFi Technologies.

The latter is involved in managing assets in the decentralized finance sector. This is an example of how companies are expanding beyond mining operations.

I believe that Marathon Digital is likely to be more diversified in the next few years. For now, strong growth in revenue and cash flows is likely to trigger renewed upside. Therefore, the current phase of stock consolidation is a good opportunity to accumulate.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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