Anyone who has been a long-time reader of mine knows my love for technology. That ranges from cloud-computing and A.I. all the way to cryptocurrencies. With that said, not everything in between is a buying opportunity — including Marathon Patent Group (NASDAQ:MARA).
MARA stock commands a $78 million market capitalization, making it a fly-under-the-radar name for many investors. However, with shares rallying almost 500% from the lows on July 24 to the highs on Aug. 6, it caught a lot of investors’ attention.
That’s even as MARA stock then pulled back by 60% over the next few weeks. Still, shares are up almost 180% from those July 24 lows, leaving many wondering if this is a speculative name worth holding.
I’ll save you the trouble and just answer with a quick “no.” For those more interested though, feel free to keep reading.
Avoiding Marathon Patent
The first red flag jumps out right away when one scans across multiple investing platforms. That is, that the company has three employees. My assumption is that it’s the three executives listed on the website, and who knows, maybe there are more now. But the fact that it was three while this is a public entity at least raises an eyebrow.
In essence, the company basically owns mining operations for cryptocurrencies. In that respect, it will be dependent on cryptocurrencies retaining value moving forward. In its own words, “Marathon is a digital asset technology company that mines cryptocurrencies, with a focus on the blockchain ecosystem and the generation of digital assets. We currently operate one mining facility in Quebec.”
Coming into 2019, current liabilities outweighed current assets. This created concern for the company and its ability to cover short-term obligations. However, to Marathon Patent’s credit, the company has bolstered its assets while cutting down on total liabilities.
As for free cash flow (FCF), the company has been operating as a negative FCF entity for some time now. Management’s expectation is reportedly for that to change soon. While in theory the business model is solid, this is an expensive operation to get up and running. This makes it a tough business to thrive in — and helps explain why the stock has struggled so much.
Marathon Patent has generated over $878,000 worth of revenue in the first six months of the year. That’s up from $586,500 in the same period from the prior year. However, 2020’s cost of revenue stood at more than $1.89 million, creating an operating loss that only worsened as the income statement went on.
Ultimately, this is an operating cash outflow situation until management can either bolster revenue or cut operating costs.
Bottom Line on MARA Stock
As much as I do like the crypto space, there just isn’t enough here to get me excited. I mean, there’s a reason why MARA stock was facing a potential delisting from the Nasdaq earlier this year.
There’s also a reason it’s undergone three reverse splits since 2013. Sure, it did a standard 2-for-1 split in late 2014, but that was after a 1-for-13 split in 2013, followed by two more reverse splits in 2017 and 2019.
Look friends, I’m not here to beat up and bash on MARA stock. It would be great if this company turned the corner, flipped to sustainable FCF operations and made an epic comeback.
I’m just staying that, with a $78 million market cap and less than $1 million in revenue so far in the first six months of 2020, there are concerns. There are also a bundle of stocks ripping to new all-time highs, while the market is at new highs too.
Why fool around with such a speculative holding when the bull market is running so strong? If one’s counter to that argument is that the market may unwind, well then how do you think MARA stock will perform in a bear market?
This one is simply too speculative for me and for that reason, it’s one I’d like to avoid.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.