The valuations of crypto mining stocks have jumped in the past few months as crypto currencies have gained increasing traction with institutional and retail investors. For instance, since January 1, Bitcoin’s (BTC) price has increased two-fold, hitting a new high north of $60,000.
Helping to fuel this rally is this week’s direct listing of Coinbase (COIN), the largest cryptocurrency exchange platform. Shares of COIN jumped on their first day of trading this week, and as of today the company has a market capitalization of more than $64 billion.
So, against this backdrop, let’s have a look at RIOT Blockchain Inc. (RIOT) and Marathon Digital Holding (MARA), two of the largest crypto mining companies in the U.S., to evaluate which stock is currently the better buy.
RIOT Blockchain Inc. (RIOT)
Shares of RIOT have appreciated 165% year-to-date. The company expects to double its mining speed this year, reaching approximately 5 Exahashes per second (EH/s) by the end of 2021.
RIOT produced 491 BTC in the first quarter of 2021, an increase of 75% compared to last year. The company has only 1,565 BTC on its balance sheet, all from its mining operations. Yet, RIOT is one of the most profitable mining companies in the sector, with a 67.6% gross margin.
However, the company has a questionable history. RIOT was created in October 2017 when Bioptix, a biological sciences technology firm with one registered veterinary patent, changed its name to Riot Blockchain and pivoted from medtech to blockchain.
In 2019, the company announced plans to launch an exchange, RiotX, that was to include banking services, a trading engine, and digital wallet services. Yet, in 2020, RIOT did not include any financial results from trading nor any information about an actual or prospective trading exchange.
RIOT trades at a sky-high valuation, with a Price/Book (P/B) ratio of 14.2x and Price/Sales (P/S) of 349.27x. Also, the company has not yet generated a profit. But the consensus is that RIOT will be become profitable by year’s end. Riot’s stock has been appreciating rapidly alongside cryptocurrency prices. So, if crypto prices continue to skyrocket, it’s reasonable that so too will RIOT’s stock price.
Marathon Digital Holding (MARA)
MARA stock price has soared more than 275% so far this year to $39 per share. MARA’s growth prospects are much more aggressive than RIOT’s. It plans to lift its mining power to approximately 10.37 EH/s in the first quarter of 2022 from 0.71 EH/s currently. If it succeeds, MARA’s mining pool would be the seventh-largest bitcoin pool in the world, putting North America on the map as a digital-asset mining hub.
In terms of operations, MARA expects to grow rapidly this year and plans to achieve a 5.9% market share by year’s end. The company mined 196 Bitcoin in the first quarter, reaching a total of 5,134 bitcoins and representing a fair value of $301.9 million as of March 31. The company purchased 4,812 BTC at an average price of only $31,168—half today’s BTC market price.
Yet, MARA has a negative gross margin ( -169%) and its net loss increased to $5.2 million in the fourth quarter of 2020, compared to a loss of 1.2 million in prior-year fourth quarter. Valuation wise, MARA’s P/B ratio is slightly lower than RIOT’s, standing at 11.3x, whereas its P/S ratio is a ludicrous 1,156x.
Here’s the Takeaway
While crypto mining companies provide a great proxy for BTC and other cryptocurrencies, both RIOT and MARA currently have sky-high valuations. In the short-term, and if the bullish momentum on cryptos endures, investors with robust risk appetites could speculate on either of these stocks because both are shadowing the movement in cryptos. However, when crypto prices fall, traders should expect these two stocks to plunge.
So, we don’t recommend long-term investors buy either of these stocks at such high valuations. However, if picking one over the other, we think RIOT would be the better bet because it is a more established company in the crypto mining space. RIOT has superior profitability than MARA and has more ‘moderate’ growth expectations.
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RIOT shares were trading at $44.75 per share on Friday afternoon, down $3.36 (-6.98%). Year-to-date, RIOT has gained 163.39%, versus a 12.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Cristian Docan
Cristian is an experienced investment analyst and financial writer. Prior to StockNews.com, Cristian spent three years as a consultant providing investment research and content to financial services companies and online publications on the Oil & Gas sector. Cristian enjoys researching and writing about stocks and the markets. He takes a fundamental, technical and quantitative approach in evaluating stocks for readers. More...
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