Leonid Sukala/iStock via Getty Images
Marathon Digital Holdings (NASDAQ:MARA) has been taking a beating lately, as have all the Bitcoin miners that rise and fall in correlation with the price of Bitcoin (BTC-USD).
It recently released its latest earnings report, and this article we’ll look at some of the numbers, what it means for the company now, and what the future looks like going forward.
Its latest earnings report was released on Wednesday, May 4, and the company showed significant growth over the last year, even though it slightly missed on revenue; that doesn’t concern me because it was primarily a result of lower Bitcoin prices in the reporting period.
Revenue in the quarter came in at $51.7 million, missing by $1.85 million. The revenue miss was the direct result of a 25 percent drop in the price of Bitcoin. That was also offset in part by the record 1,259 Bitcoin produced in the quarter.
Considering it missed by under $2 million under those modest price conditions, confirms it’s ready to make a significant upward run once the price of Bitcoin bottoms out and resumes an upward move.
The good news for MARA shareholders is when it does make a big run, it leverages the price of Bitcoin far beyond its competitors, as the chart below confirms.
My thesis for Bitcoin miners is the companies with solid balance sheets will be not only survive but thrive in the months and years ahead. In that regard MARA has a lot to look forward to.
The company has cash and available credit of 110.8 million available, while holding 9,673 BTC at the beginning of May, valued at $365.5 million. If the price of Bitcoin remains subdued for a prolonged period of time, MARA has more than enough liquidity to endure. And that doesn’t include the Bitcoin it’s going to continue to mine in the future.
This is important because there is no doubt in my mind Bitcoin has a long way to go before it hits any type of ceiling, and over time, companies like MARA with heavy exposure to Bitcoin are going to have their share price soar.
The other positive catalyst will be the increase in the value of its Bitcoin holdings as the price of the flagship cryptocurrency climbs over time.
The obvious question in all of this is, where is the price of Bitcoin going? The answer is, we don’t know in the short term.
My personal outlook is we are likely to have one more significant downward move in the price of Bitcoin before it reverses direction. Under the current economic conditions and accompanying fear, it’s difficult to make predictions with conviction because of the many variables affecting the market, including the fact it is temporarily correlating with the movement of high-growth tech stocks; something that hasn’t happened in the past.
That has come about from institutional investors taking big positions in Bitcoin. Using the DCF model, they project out higher interest rates and lower earnings, resulting in lower expectations for high-growth companies. Since they lump Bitcoin in with tech stocks, the price of Bitcoin is now locked in with the prospects of the high-flying tech stocks.
I believe that correlation is only temporary and will decouple in the not-too-distant future. That will probably happen when Bitcoin finally hits its bottom.
The good news is, MARA’s share price has dropped to the place in correlation with the price movement of Bitcoin, that is offers an attractive entry point at this time, even if the price of Bitcoin takes another bit dive.
I’m continuing to add to my position by averaging down in response to the price movement of Bitcoin, even though I started at a position that was much higher than those considering taking a position now.
Again, the key is to understand that MARA can move quickly to the upside even if the share price drops significantly.
MARA is one of the more interesting Bitcoin miners because of its volatility, and propensity to leverage the price of Bitcoin beyond its peers. The times it has done this over the last year has rewarded shareholders magnificently if they held on.
On the other hand, the price of Bitcoin can also be leveraged to the downside, and when the share price of MARA drops, it can drop precipitously, although it also bounces back in alignment with the price of Bitcoin. Even so, those that aren’t comfortable with that type of volatility probably shouldn’t take a position in MARA because they’re likely to sell off at a significant loss if they’re scared out of their position.
This is why position sizing is critical to being comfortable with holding on to MARA shares even if they drop in a big way. Just study the charts like the one above in order to remind yourself that MARA will eventually, not only swing back into positive territory, but do so with a vengeance.
I like to take positions in MARA because of its volatility. And for those that like to short, it provides terrific opportunities on both sides of the play. But after it has dropped as low as it has recently, it’s getting much riskier to go short than it was even a month ago. I would only be considering taking a long position in the company, even if the price of Bitcoin drops much further.
MARA is at a very good entry point as I write, and the way to play it is to take smaller positions and be ready to average down if the expected drop in Bitcoin prices occurs.
I’ve been doing that for some time and have stopped doing so in anticipation of one more downward move. I don’t want to get in too quickly and miss out on a big opportunity. This protects traders on the downside, even if it lowers the potential on the upside of the big decline in Bitcoin prices never happens.
Either way, MARA’s share price offers a great entry point, and for the patient investor, I have no doubt it’ll pay off in the long term.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of MARA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.