Marathon Digital’s (NASDAQ:MARA) bull case is backed by Bitcoin’s (BTC-USD) upward climb and the company’s efforts to improve product efficiency. Even though there are plenty of risks to consider, recent news of Bitcoin’s price surge following spot ETF approvals and an upcoming halving have some investors bullish on this token. Throw in other catalysts, like a potential cut from the Federal Reserve, and investors can foresee a world in which Bitcoin moves much higher. This is a huge part of my MARA stock analysis.
Obviously, such a move would be very bullish for companies like Marathon Digital, which directly benefit from such price movements. Let’s dive into why MARA stock could remain one of the best ways to play this trend, and why its stock price may actually be undervalued right now.
Bitcoin Halving Impact Is Complicated
Something occurs every 210,000 blocks (or roughly every four years) in the Bitcoin world. Essentially, the rewards given to miners in Bitcoin are halved at this juncture. With limited supply usually comes price gains, and historically this has been the case for Bitcoin. However, for Bitcoin miners, the ultimate impacts have been complicated, as lower rewards essentially guarantee a halving of revenue, at least in the very short term.
So, the key question investors are forced to answer is whether Bitcoin’s price will double (enough to offset the 50% decline in mining rewards), or if some period of stagnation will eat into profits. This is the multi-million dollar question for MARA stock and is one that’s difficult to answer. This is a key part of my MARA stock analysis.
Now, Marathon Digital has put money aside in anticipation of this having event, to act as a downside buffer. I think that’s a great move. And while Bitcoin halving events chip away at new coin issuance, maintaining scarcity with a 21 million cap, there’s also the potential for this halving to once again trigger new waves of price surges and boost adoption. Halvings cultivate innovation in mining technology and energy efficiency, at least that’s how the thinking goes.
Marathon expects to be able to bounce back even though the mining incentives will be lower because of the positive anticipated price effects of Bitcoin’s halving. Upping productivity and efficiency can be grasped by diversifying into less energy-intensive areas. The expansion process is set in motion.
More Potential for MARA
Proactive strategies carry Marathon Digital’s bull case. An expansion coming out swinging in Bitcoin mining capacity led to a 58% production increase in January. Acquisition efforts shoot for the stars in the form of improving cost structure, with a 30% reduction in mining costs expected. Accordingly, a number of analysts are keeping a close eye on significant profitability growth in the coming quarters.
It’s easy to side with such a view, and I do think the outlook looks bright for Marathon Digital in the medium term, given the upcoming halving event will likely be a net positive. Of course, if a Bitcoin bull market materializes, there’s always some optionality tied to this trade that makes MARA stock perhaps the better pick. And if such bullish momentum persists, profitability could be seriously upgraded because of high operating leverage in crypto mining operations.
Much like traditional mining and energy stocks, Marathon’s fixed costs could open up to substantial profit growth despite small Bitcoin price jumps. Analysts project 58% earnings growth, with some forecasts whispering a near triple. Short and long-term factors back Bitcoin’s rally potential, and therefore that of Marathon Digital.
MARA is Favorable
According to forecasts, Marathon will take between 18 and 54 cents per share next year. Forecasts also say Marathon will make about 19 cents this year. Positive signals point to the potential of outcomes going past expectations, particularly if the current Bitcoin bull run continues until 2025. With growing low-cost mining capacity, investors may remain cautiously bullish on MARA stock, despite the inherent dangers of owning this name. This concludes my MARA stock analysis.
On the date of publication, Chris MacDonald did not have (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.
