Marathon Digital Holdings (NASDAQ:MARA), the U.S. cryptocurrency mining company, recently updated investors about its operations and holdings in Bitcoin (CCC:BTC-USD). That might lead to a rise in MARA stock over the long term, especially since its future is pretty bright now.
On Sept. 3, the company indicated it was now producing Bitcoin at a rate of 469.6 BTC per month. Moreover, the company has accumulated 6,695 BTC tokens. So at the Sept. 15 price of $48,207 per BTC token, their holdings are now worth $322.75 million. That works out to 8.7% of its $3.691 billion market value.
Moreover, on Sept. 15, the company released a very informative slide deck on its website. This will help investors assess the company’s future now that China is literally out of the Bitcoin mining business.
Implications From the Investor Presentation
First, the slide deck shows the company is extremely profitable on an underlying basis. Page two shows that Marathon’s basic mining cost on a “blended” basis is just $5,612 per BTC. Given that Bitcoin’s price was $48,207 yesterday, its underlying margin on a gross basis is around 11.6%. This is one of the lowest gross margins I have ever seen and indicates incredible profitability.
Next, the company predicts that if all its miners were operating today (some are in delivery), it would have a run rate revenue of $1.43 billion. This is 5.7 times the $251.5 million analysts surveyed by Seeking Alpha forecast for 2021 and almost twice its expected 2022 revenue of $783.93 million. As a result, I suspect analysts will be upgrading their 2022 estimates shortly.
The company made it clear that its goal is to maximize its return on assets (ROA). For example, one way it can do that is to buy BTC mining equipment, also called miners, at very cheap prices. Page 11 of the slide deck shows that it expects to be able to make 109% annually on $30 million invested in miners.
Another way it can achieve this goal is to own its own hosting facilities, as seen on page 10. It expects to make a ROA of 9.3% annually with this method.
Lastly, the company has contracted for its power needs at an advantageous rate.
Where This Leaves MARA Stock
If we believe Marathon’s story that its run rate revenue will reach $1.4 billion, then Marathon stock, at a $3.691 billion market value, is trading at just 2.63 times sales.
But if you believe analysts’ forecasts for 2022 sales of $784 million, it’s trading at 4.7 times sales. Last month I wrote that Marathon’s peers trade at an average price-to-sales (P/S) multiple ranging from 3.7x to 20.4x 2022 sales.
The average works out to 13.7 times P/S. Let’s decide to be overly conservative here, just to add in a margin of safety. If we took half of this ratio, and if we used the analysts’ forecast, the P/S multiple will be 6.85 times.
Using the 2022 sales forecast of $784 million, the target market value should be $5.37 billion. It could be significantly higher if the sales revenue works out to $1.4 billion, as the company seems to predict. This is 45.5% higher than Marathon’s $3.691 billion existing market capitalization.
As a result, MARA stock is worth $53.91, or 45.5% higher than its Sept. 15 price of $37.05.
What to Do With MARA Stock
Analysts tend to agree with my price point. For example, TipRanks.com indicates three analysts who’ve written on the stock in the last three months have an average price target of $48. This is 29.6% over yesterday’s price.
In fact, Seeking Alpha reports that three analysts (presumably different ones) have an average target of $61.67, or 66.45% higher. So, the average of these two surveys results in a price target of $54.84 per share, which is close to my price target of $53.91.
That means the enterprising investor should be willing to begin buying shares in MARA stock. Keep in mind that if the company’s revenue explodes this year, the average purchase price will be higher each time.
On the date of publication, Mark R. Hake held a long position in Bitcoin, but not in any other security mentioned in the article, either directly or indirectly. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
