Miner for cryptocurrency Marathon Digital Holdings (MARA) has been volatile as the price of Bitcoin fluctuates wildly. Here’s what the fundamentals and technical analysis say about buying MARA stock now.
Marathon is a digital asset technology company mining cryptocurrencies with a focus on the blockchain ecosystem and digital asset generation.
The company started as Marathon Patent Group in 2010, when it started collecting patents related to encryption. MARA shares traded in 2013. On March 1, the company changed its name to Marathon Digital Holdings. On April 26, Fred Thiel Merrick replaced Okamoto as CEO.
Marathon Digital provides the computing power needed to mine Bitcoins. Bitcoin mining consists of processing or validating transactions. The speed at which a digital currency miner processes transactions is called hash rate. The faster a miner can process transactions, the more revenue it generates.
Marathon Digital is paid in Bitcoin for mining. The company can then sell this Bitcoin to generate revenue. Marathon Digital also finances its activities through financing.
The mining power of Marathon Digital is growing
On September 2, the company reported that it had produced 469.6 new minted bitcoins by August 2021, increasing its total holdings of bitcoins to approximately 6,695 with a fair market value of approximately $316.4 million.
Cash available was $70.9 million and total liquidity, defined as cash and bitcoin holdings, was approximately $387.3 million.
Marathon has received 21,584 top-level ASIC miners from Bitmain so far, with another 5,916 on the way. The existing mining fleet consists of 22,412 active miners producing approximately 2.3 EH/s.
Rival Riot Blockchain (REVOLT) produced 491 BTC in the first quarter. However, Riot is one of the most profitable mining companies in the industry, with a gross margin of 67.6%, while Marathon Digital posted a negative gross profit margin of -498.9% in the first quarter.
Growing Plant Base
Marathon Digital plans to expand the machine installations in the coming months. It expects to deliver 75,000 miners by the end of this year, with another 15,200 in January 2022. Marathon Digital expects to have a total of 103,120 miners by the first quarter of 2022. With this mining capacity, it expects to produce 55-60 Bitcoin per day.
Dede wrote in an April 12 report that Marathon’s average cost per mining machine is $2,300, which is significantly lower than the $7,999-$18,500 he has seen others pay.
On May 24, Marathon Digital signed a deal with Compute North to host approximately 73,000 of its Bitcoin miners as part of a new 300-megawatt data center in Texas. Marathon will provide Compute North with an 18-month bridging loan of up to $67 million to build the facility. The project is expected to start in October 2021.
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MARA Stock Technical Analysis
Marathon Digital formed a bearish head-and-shoulders pattern in early April. But the stock moved south from there and no new pattern has formed.
MARA stocks are closely tied to Bitcoin prices, so they’ve been on a wild ride. At the start of the year, MARA stock was trading around 10. When Bitcoin rose, the stock reached a high of 57.75 on April 6.
Shares rose 15% on July 26 as Bitcoin’s price climbed back to over $39,000, but returned most of those gains on July 27. MARA stocks are trading above the 50-day line, according to MarketSmith chart analysis.
Shares fell a whopping 5.5% on June 21 as Bitcoin’s value fell below $33,000 amid an intensification of China’s crackdown on Bitcoin mining. On September 24, China banned all cryptocurrency transactions. The move caused Bitcoin’s value to drop by $2,000.
Meanwhile, on July 15, the Biden administration said it formed a task force to address the use of cryptocurrency in ransomware attacks. Its efforts will focus on tracing the proceeds paid to hackers.
But renewed interest in non-fungible tokens and a growing use of smart contracts fueled a 5% rise in Bitcoin on Sept. 2, pushing the digital currency back above $50,000.
The stock’s relative strength line is ticking up. Marathon Digital has a top-notch RS rating of 99 and a composite rating of 76.
An Accumulation/Distribution grade of A indicates heavy purchases by institutional investors.
Wall Street interest
But Wall Street seems to be excited about the company’s stock lately. MARA shares are up 6.5% on August 20 on news that black rock (BLK), the world’s largest asset manager had taken a 6.7% stake in the company in June.
According to ETF.com, BlackRock’s iShares Russell 2000 ETF (AND SO FORTH.) is the largest holder of MARA, with 2.14 million shares. Meanwhile, BlackRock’s iShares Russell 2000 Value ETF (IWN) ranks as the third top holder of MARA shares.
MARA shares rose 27% in the days following the August 4 news that Fidelity had purchased a 7.4% stake in Marathon Digital.
Fidelity spreads the mining company’s shares across four index funds: Fidelity Extended Market Index Fund (FSMAX), Fidelity Nasdaq Composite Index Fund (FNCFX), Fidelity Total Market Index Fund (FSKAX) and Fidelity Series Total Market Index Fund (FCFMX).
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Fundamental Analysis of MARA Stocks
Analysts had expected Marathon to turn a profit in the second quarter, but the company posted a loss of $1.09 per share, up from a loss of 13 cents a year ago and missed estimates of $1.25.
Revenue came in at $29.3 million vs. $300,000 in last year’s quarter and missing views at $5.1 million.
“In Q2 2021, we continued to effectively scale our business by sequentially increasing our 196% hash rate from 0.7 EH/s at the end of Q1 to approximately 2.09 EH/s end of June,” said CEO. Fred Thiel.
Marathon 654 bitcoins in Q2, bringing production for 2021 to 846 newly minted bitcoins. In July, Marathon produced 442.2 additional bitcoins.
On August 12, Marathon produced 1,441 bitcoins, bringing the total number of bitcoins to 6,378.
As of June 30, 2021, the book value of Marathon’s mined digital assets was $29.0 million, equating to accumulated impairment losses of $11.7 million.
With losses still piling up, MARA stock has an EPS rating of 20 out of a possible 99.
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Is MARA Stock A Buy Now?
The volatility of the MARA stock, due in large part to its link with Bitcoin, makes it a risky investment. On May 20, news that the Biden administration could require transactions over $10,000 to be reported to the IRS sent the value of Bitcoin and other cryptocurrencies plummeting.
Meanwhile, Marathon Digital chairman Merrick Okamoto said in a May 24: tweet he had met other bitcoin mining executives the previous weekend. The group, including Tesla (TSLA) CEO Elon Musk and Microstrategy (MSTR) CEO Michael Saylor, established a Bitcoin Mining Council to promote transparency of energy consumption and accelerate sustainability initiatives.
Marathon Digital also does not yet have a track record of strong, consistent earnings and revenue growth.
Stocks have lost about half their value since they peaked in April.
Bottom line: Marathon Digital is not a buy because it has not formed a discernible pattern. But investors should keep an eye out for MARA stock as it has amassed an impressive arsenal of computing power.
Check out IBD stock lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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