When Bitcoin was surging in November 2021, Marathon Digital (MARA) stock also had a big rally. The stock touched highs of $83.45. Being a Bitcoin miner, Marathon has a high positive correlation with the crypto market.
Therefore, it’s not surprising that MARA stock has declined sharply from all-time highs. Currently, the stock trades at $21. I remain bullish on Marathon Digital, and I believe that current levels are attractive for accumulation.
There are two primary reasons for being positive about MARA.
First and foremost, Bitcoin seems to have bottomed out. With continued growth in crypto adoption and high inflation, it’s likely that Bitcoin will resume an uptrend. With the United States talking about “responsible innovation” from cryptocurrencies, the regulatory headwinds are likely to decline.
Furthermore, Marathon Digital has been on a high-growth trajectory. However, the best part is still to come for the company. If mining capacity growth is coupled with an upswing in Bitcoin price, Marathon stock is poised to retest highs in the coming quarters.
Let’s take a deeper dive into the company’s growth plans and their impact on the financials.
Mining Capacity Expansion
Since I am talking about significant mining capacity growth for 2022 and 2023, it makes sense to talk about financial flexibility.
As of January 1, 2022, Marathon reported cash on hand of $268.5 million. Considering its Bitcoin holdings, the company’s total liquidity buffer was $644.3 million. Therefore, MARA started the year well-financed for aggressive growth. As of March 1, 2022, cash on hand was $106.4 million, and total liquidity was $493.2 million, which is still solid.
Coming to the growth in mining capacity, Marathon reported a hashing capacity of 3.5EH/s as of January 2021. As of March 2022, the capacity had increased to 3.8EH/s.
This growth seems insignificant considering what’s lined up for the next 12 months. By mid-2022, Marathon expects to increase capacity to 13.3EH/s. Furthermore, capacity is expected to increase to 23.3EH/s by early 2023. Clearly, the best part of growth is still to come with aggressive miner deployment on the cards.
Revenue Growth Estimates
Marathon also estimates that at a capacity of 13.3EH/s, the company will mine 66 Bitcoin per day. Bitcoin currently trades near $40,000.
Assuming this as a base price, Marathon is positioned for monthly revenue of $79 million at 13.3EH/s capacity. This would imply an annualized revenue potential of $950 million. Also, when the capacity increases to 23.3EH/s, the annualized revenue potential is likely to be around $1.5 billion.
For now, the new miner deployment has been relatively sluggish. Marathon has, however, indicated that deployment would continue to accelerate through 2022.
Another point to note is that as the Bitcoin mined swells, the company will be positioned for the next leg of expansion. The digital assets can be held in the balance sheet or used for expansion and diversification. Marathon is, therefore, in an early growth stage. If the execution of plans is robust, the stock looks like a long-term value creator.
In terms of key margins, Marathon has guided for a blended mining cost of $6,235 per Bitcoin. There is potential for significant cash flows if Bitcoin trends higher.
Wall Street’s Take
Turning to Wall Street, Marathon has a Strong Buy consensus rating, based on six Buy ratings assigned in the past three months. The average Marathon Digital price target of $56.83 implies 167.2% upside potential.
Concluding Views
With the recent rise in energy prices, it’s likely that electricity costs will escalate for Marathon and other Bitcoin miners. However, it’s possible that the cost escalation will be completely offset by a potential rise in Bitcoin. MARA’s EBITDA margin is therefore likely to remain healthy.
Overall, Marathon stock is trading at a forward price-to-earnings ratio of 8.7. Valuations seem attractive considering the point that multi-fold revenue and EBITDA growth are on the cards.
Once sentiments turn bullish for Bitcoin, a meaningful rally can be expected in the stock. Exposure can therefore be considered with a time horizon of 12-24 months.
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