Marathon Digital (NASDAQ:MARA) now finds itself in the middle of a Bitcoin (CCC:BTC-USD) mining bonanza. This is because the Chinese government shut down most of the country’s Bitcoin mining operations over the past two months. As a result, Marathon Digital has seen several benefits. In fact, the situation is going to raise the value of MARA stock quite dramatically.
I expect to see Marathon Digital rake in at least three or four major benefits from China’s crackdown on Bitcoin mining. These include hiked BTC prices, reduced equipment costs and more.
Here’s what you should know about MARA stock moving forward.
How China’s Mining Shutdown Helps MARA Stock
To start, one benefit of this crackdown has been the huge gain in Bitcoin’s price. For example, since its recent trough on Jul. 19, BTC is up 44% as of the Aug. 12 close. This is a huge rebound, as the cryptocurrency has risen over 58% year-to-date (YTD). So, most of the gain has occurred in the last month or so, coinciding with the shuttering of many of China’s mining operations.
This helps Marathon Digital because it mines Bitcoin, therefore increasing the pricing of its mined BTC tokens and enhancing its revenue. In addition, it directly helps Marathon’s balance sheet. At the end of Q1, the company had almost $300 million in Bitcoin on its balance sheet.
Second, estimates are that over 50% of the Bitcoin mining industry’s hash rate has now been removed with so many Chinese operations now out of the picture. As a result — and as CNBC points out — the difficulty in mining Bitcoin is now much easier. This effectively increases the volume of BTC that Marathon Digital can mine, which also increases its revenue.
And third, Bitcoin mining equipment is also now a good deal cheaper, with most ASIC (application-specific integrated circuits) machines being made in China. Many of these manufacturers are having to lower their pricing as a result of losing many of their domestic customers. In addition, secondary market prices for ASIC miners have also fallen.
For example, on Aug. 2, Marathon announced a massive new $120.7 million purchase of 30,000 Antminer S19j Pro miners. That works out to just $4,023 per miner (i.e., $120.7 million / 30,000). Previously, these miners would likely have cost much more, especially given the shortage of semiconductor chips. Bloomberg reports that there was a 75% decrease in the price of secondary-market equipment this summer.
Comparing Marathon Digital’s Valuation
Analysts now project that Marathon’s revenue will rise dramatically, from $225 million this year to $597 million in 2022, according to Seeking Alpha. At the time of this writing, the company had a $3.27 billion market capitalization, putting MARA stock on a price-to-sales (P/S) multiple of 14.5 times for 2021 and just 5.47 times for 2022.
By comparison, Riot Blockchain (NASDAQ:RIOT) trades for 17.9 times 2021 sales and 8.7 times 2022 sales. This put it 23.45% higher for 2021 and 59% higher for 2022. So, on average it is valued 41% higher than MARA stock. In addition, Hive Blockchain (NASDAQ:HVBT) is at 20.4 times and 7.65 times multiples for 2021 and 2022, respectively. This works out to an average of 40% higher than Marathon Digital.
However, Hut 8 Mining (NASDAQ:HUT) trades for 6.8 times and 3.7 times sales respectively, 43% lower than Marathon Digital. Likewise, Bitfarms (NASDAQ:BITF) trades for 11 times 2021 sales, which is 24% below MARA’s 2021 P/S multiple.
What to Do with MARA Stock
Therefore, on average Marathon Digital is about 14% too cheap (i.e., 41% + 40% – 43% – 24% = 14%). This implies that MARA stock should trade for $37.48 per share, a 14% increase from its Aug. 13 close of $32.88.
However, if we weigh the percentages by market value, I suspect that it would show Marathon is even cheaper right now. This is because Riot Blockchain and Hive Blockchain have higher market values.
Value-oriented investors might want to take a small position in this stock as a result.
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On the date of publication, Mark R. Hake held a long position in Bitcoin. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.