MARA Holdings (MARA), formerly Marathon Digital Holdings, is a digital asset technology company with a business model centered on the mining and holding Bitcoin (BTC). The stock has been surging lately, but I can’t get behind any stock that’s so closely tied to the performance of cryptocurrency. For that reason, I’m bearish on MARA stock.
MARA Holdings is Bitcoin-Focused
The main reason I’m bearish on MARA stock is its focus on Bitcoin, despite attempts at diversification. While MARA Holdings is exploring new ventures, its core business remains tied to the volatile cryptocurrency market. For me this is a huge risk. MARA’s reinstatement of its Bitcoin HODL strategy, which is an investment strategy where investors hold onto their Bitcoin instead of selling it, exposes the company to significant risk.
By purchasing $100 million of BTC and no longer selling mined Bitcoin, MARA is essentially becoming a leveraged Bitcoin fund. This approach makes the company highly susceptible to Bitcoin price fluctuations, with management stating that a $10,000 price change in BTC will result in a $200 million impact on earnings. In recent months the strategy has been vindicated. But cryptocurrencies are inherently volatile and a reversal in Bitcoin’s value would result in collapsing earnings.
Although MARA Holdings is venturing into data center cohosting, infrastructure integrations, and heat generation partnerships, these initiatives are still in their infancy. As a late entrant in the data center cooling space, MARA may struggle to gain market share with its dual immersion technology. Additionally, the company’s foray into artificial intelligence (AI) inferencing and server rack production puts it in direct competition with established players like Super Micro Computer (SMCI) and AMD (AMD). MARA’s mining operations have been negatively impacted by the recent Bitcoin halving event and increased global hashrate, leading to higher mining costs and reduced profitability.
MARA Valuation is Stretched
Another reason I’m bearish on MARA stock is its valuation. In addition to the inherent risks of investing in a stock that closely reflects the value of a cryptocurrency, the valuation appears stretched, even if you’re bullish on Bitcoin. The company’s price-to-earnings (P/E) GAAP (TTM) ratio of 43.4 times is 38.2% higher than the sector median of 31.4 times. This premium valuation is more pronounced when looking at the EV-to-sales ratios.
MARA’s EV-to-sales (TTM) of 15.3 times is a staggering 352% higher than the sector median of 3.4 times, while its forward EV/Sales of 14.9 times is 364% above the sector median. Moreover, the price-to-sales (P/S) ratios tell a similar story, with MARA’s TTM P/S of 11.9 times being 270% higher than the sector median, and its forward P/S of 14.1 times sitting 342% above its peers. These figures suggest the stock is overvalued. Interestingly, MARA Holdings’ price-to-book (P/B) ratio of 2.9 times is actually 15.2% lower than the sector median, potentially indicating some value.
However, this is offset by the company’s elevated EV-to-EBITDA ratios, with the TTM figure of 27.6 times being 41% above the sector median. And finally, while MARA’s forward price-to-cash flow ratio of 9.4 times is lower than the sector median, the overall picture painted by these valuation metrics is negative.
MARA Holdings Could Prove Skeptics Wrong
Despite my bearish outlook, MARA Holdings could prove skeptics wrong. To start, the company owned 26,747 Bitcoin at the end of this year’s third quarter. At the current price that’s just shy of $2.6 billion, accounting for almost a third of the company’s market capitalization. I’m under no illusion that Bitcoin could rally further. Moreover, there are some positive forecasts. Analysts anticipate significant revenue growth for MARA Holdings over the next few years, including:
- For 2024, revenue is estimated at $613.1 million, representing a 58.2% year-over-year increase.
- In 2025, revenue is projected to reach $958.6 million, a 56.4% jump from 2024.
- By 2026, revenue is expected to surpass $1 billion, albeit with a more modest 5.4% growth rate.
The current consensus earnings per share (EPS) estimates suggest continued losses. MARA is expected to report a loss of -$0.09 in 2024 and that could widen to -$0.23 by 2026. Nonetheless, there are potential catalysts that could drive MARA stock higher. This includes the potential appreciation of Bitcoin, a successful diversification, increased operation efficiency, and shifting market sentiment in favor of cryptocurrencies. I’m bearish but accept things could move in the company’s favor.
Is Mara Holdings a Buy?
On TipRanks, MARA stock comes in as a consensus Hold based on three Buy, five Hold, and one Sell ratings assigned by analysts in the past three months. The average MARA price target is $27.57, implying about 2% upside potential.
Read more analyst ratings on MARA stock
Conclusion
I’m bearish on MARA stock due to its overwhelming focus on Bitcoin, which exposes the company to significant volatility. The reinstatement of its HODL strategy, a $100 million Bitcoin purchase, and ceasing sales of mined BTC, positions MARA as a leveraged Bitcoin fund. This approach makes earnings highly sensitive to Bitcoin price fluctuations. Additionally, while MARA is attempting to diversify, these initiatives may not deliver the intended results.
