The cryptocurrency market is showing no signs of fading, in turn invigorating blockchain miner Marathon Digital (NASDAQ:MARA). In addition, the company is heading toward its fourth-quarter earnings disclosure, which may produce a positive surprise given the crypto rally. While some traders remain bearish on MARA stock, pessimistic positions are at risk of getting blown up.
According to data from CoinMarketCap, the total market capitalization of the global crypto ecosystem stands at $2.06 trillion. This incredible tally represents a 3.2% lift over the past 24 hours. Subsequently, the robust sentiment for cryptos is dramatically invigorating MARA stock today, which is gaining about 20% this afternoon.
Per the company’s Form 10-K disclosure, Marathon is an enterprise that “mines” cryptocurrency “with a focus on the blockchain ecosystem and the generation of digital assets.” Specifically, its strategy is to produce and hold the benchmark crypto, Bitcoin (BTC-USD) as a long-term investment “after paying for cash operating costs of production.” Inherently, then, the fortunes of MARA stock are tied to the blockchain.
MARA Stock May Enjoy an Upswing After Feb. 28
Beyond just the excitement of the soaring crypto market, stakeholders of MARA stock have another possible catalyst on the horizon: Marathon’s Q4 earnings report. This report is due to be disclosed on Feb. 28 after the closing bell.
As Zacks Equity Research notes, the crypto miner’s earnings surprise history has not been impressive; on average, Marathon’s trailing four-quarter negative earnings surprise sits at 65.5%. In Q4 2022, Marathon conspicuously reported a loss per share of $3.09. This figure contrasted horribly against the analyst consensus target for a per-share loss of 15 cents.
Nevertheless, despite this poor earnings track record, Zacks believes that Marathon will likely produce an earnings beat. The consensus view for the company’s upcoming disclosure is EPS of 5 cents on revenue of $138.2 million.
Fundamentally, the change in tune here stems from the general correlation between MARA stock and crypto prices. A year ago, the global cryptocurrency market was worth about $1 trillion less.
A Possible Short Squeeze?
Another factor driving sentiment for MARA stock today is the possibility of a short squeeze. According to data from Fintel, MARA’s short interest stands at 21.26% of its float. Generally speaking, short interest above 20% is considered to be extremely high.
Under normal circumstances, traders placing unusually large bets against a security represents a clear risk factor. However, the nature of shorting — borrowing shares to be sold immediately in hopes of picking them back up at a lower price — requires the stock in question to fall in value. The more red ink, the better.
If the security rises, however, the short trader is obligated to return the borrowed shares at a premium. Therefore, an incentive exists to cut losses early before other bears covering their positions drive the stock even higher.
Still, before going the contrarian route, it’s important to note the short interest ratio for MARA sits at only 0.93 days to cover. In other words, based on average trading volume, bearish speculators would need less than one trading session to cover their positions. Therefore, if a short squeeze occurs, it may be short-lived.
Why It Matters
Irrespective of soaring crypto sentiment, analysts overall remain unconvinced when it comes to MARA stock, rating shares as a consensus hold. This assessment breaks down as two buys, two holds and one sell rating. Overall, the average price target sits at $21.67 per share, implying about 25% downside risk.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
