Bitcoin, the most popular cryptocurrency, appreciated exponentially last year and is up more than six-fold since its low in March 2020 to nearly $42,000 earlier this month. It has crossed $700 billion market capitalization. However, Bitcoin recently saw a major correction due to an uptick in long-term interest yields. But historically low Fed interest rates, combined with a slow and uncertain recovery of the U.S. economy, could help bitcoin rebound quickly. In fact, we think it likely that bitcoin will rise above $100,000 in 2021.
Marathon Patent Group, Inc. (MARA) and Canaan, Inc. (CAN), two well-known players in the digital and cryptocurrency industry, have been the direct beneficiaries of Bitcoin’s bull run. Both companies have been thriving as investors increasingly consider cryptocurrencies as part of their asset allocations to hedge against inflation and store value.
Also, cryptocurrencies are moving steadily closer to becoming a mainstream payment method and federal reserve currency. As such, we think both MARA and CAN have the potential to surge substantially in the upcoming quarters.
Both stocks delivered significant returns over the past six months. While MARA returned 2,390.3% over this period, CAN gained 156.8%. In terms of past month’s performance , MARA is a clear winner with 140.1% returns versus CAN’s 14.1%. But let’s find out which of these stocks is a better pick now.
Business Structure and Latest Movements
MARA is a digital asset technology company that mines cryptocurrencies, with a focus on the blockchain ecosystem and the generation of digital assets. MARA recently entered a non-binding memorandum of understanding with DMG Blockchain Solutions Inc. to form Digital Currency Miners of North America (DCMNA), which will be a U.S.-based non-profit entity and will launch North America’s first cooperative mining pool.
MARA recently closed its registered direct offering of common stock offering worth $250 million. The company also completed a $200 million shelf offering by utilizing its at-the-market (ATM) facility earlier this month. MARA intends to use the proceeds from its recent stock offering to pay for the miners it purchased from Bitmain and to further grow the business.
In line with the progress, MARA entered into a contract with Bitmain in December to purchase 70,000 Antminer S-19 ASIC miners, to be deployed in July 2021, and an additional 10,000 S-19J pro ASIC miners, to be delivered in August this year. Once all miners are fully deployed, the Company’s mining fleet will consist of more than 103,000 miners capable of producing a hashrate of 10.36 EH/s.
CAN is a leading provider of supercomputing solutions and integrated circuit (IC) final system products. It is renowned for having invented the world’s first ASIC-powered bitcoin mining machine in 2013 and radically catalyzing the growth of a computationally advanced bitcoin mining sector. The China-based company is the second largest designer and manufacturer of bitcoin mining machines globally and continues to expand its suite of advanced hardware offerings, exploring opportunities across emerging technologies.
CAN recently released the world’s first submerged liquid cooling solution and mining module. This module is dedicated to improving the heat dissipation efficiency of mining machines and, in turn, optimizing energy efficiency ratios. The company also launched second-generation AI chip Kanzhi K510 last month after two years of development. The chip is positioned in the mid- to high-end market. Itis an edge-side AI chip fully oriented to application scenarios. The computing power of this chip is three times greater than the first-generation of AI-chips.
Recent Financial Results
In the third quarter ended September 30, 2020, the company delivered revenues of $0.84 million, surging 160% year-over-year. The company generated $650,000 in Bitcoin revenue, the largest quarterly Bitcoin revenue in MARA’s history. Though the company reported a loss of $0.06 per share, it marked a significant improvement from the year-ago loss of $0.12 per share.
In the third quarter, CAN delivered total net revenues of $24 million, declining 75.7% year-over-year and 8.5% sequentially. The decrease was driven mainly by decreases in total computing power sold and average selling price per Thash/s during the quarter. CAN reported a loss of $0.54 per share, more than quadruple the quarter-ago loss of $0.10 per share.
Past and Expected Financial Performance
MARA’s revenue grew 65.4%, while its EPS declined 62.7% year-over-year, over the past 12 months.
In comparison, CAN’s revenue declined 29.5%, its EPS grew 219.4% year-over-year over the past 12 months.
However, analysts expect MARA’s current year revenue and EPS to surge 3,563.6% and 678.9% year-over-year, respectively. Moreover, its EPS is expected to grow at a rate of 50% per annum over the next five years.
MARA has an edge over CAN here.
In terms of trailing-12-month P/S, MARA is currently trading at 180.51x, 2,990% more expensive than CAN, which is currently trading at 5.84x. Also, CAN is less expensive in terms of trailing-12-month P/B (9.49x versus 24.04x).
Though MARA looks much more expensive compared to CAN, it is worth paying this premium considering MARA’s earnings growth potential.
While MARA is rated “Buy” in our proprietary POWR Ratings system, CAN is rated “Sell.” Here are how the four components of overall POWR Rating are graded for RIOT and CAN:
MARA has an “A” for Trade Grade and Peer Grade, and a “C” for Buy & Hold Grade and Industry Rank. In the 254-stock Financial Services (Enterprise) industry, it is ranked #50.
CAN has a “B” for Industry Rank, and a “D” for Trade Grade, Buy & Hold Grade and Peer Grade. It is ranked #42 in the 52-stock Technology – Hardware industry.
While both MARA and CAN are good long-term investments considering their continued business expansion and the wider interest of both institutional and retail investors in cryptocurrency, MARA appears to be a better buy based on the factors discussed here.
MARA is a relatively smaller company that is growing rapidly, and its premium valuation is justified because it has more room to grow its earnings.
More Great Investing Ideas?
MARA shares were trading at $18.86 per share on Wednesday morning, down $3.49 (-15.62%). Year-to-date, MARA has gained 80.65%, versus a 2.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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