According to analyst and MinerMetrics founder Jaran Mellerud, mining giants Marathon Digital and Riot Platforms are currently some of the most overvalued crypto-mining companies.
The value-to-sales (EV/S) ratio measures a company’s value in relation to its sales revenue. A higher ratio signifies a more overvalued company.
According to a report by Mellerud on November 3, the mining companies with the highest EV/S ratios are Cipher at 7.8, Marathon at 5.6 and Iris Energy at 5.5.
He explained that these big companies’ high EV/S ratios result from increased interest from firms like BlackRock.
“These companies have historically been favored among institutional investors like BlackRock and Vanguard, giving them superior access to capital and higher valuations like the rest of the industry,” Mellerud said.
Mellerud said investors would soon begin investing in other companies, which could balance out the valuation differences among these stocks. He recommended exploring opportunities with lower EV/S ratios that offer better pricing.
“There exist immense valuation discrepancies in the Bitcoin mining sector that value investors can take advantage of,” Mellerud said.
Mellerud emphasized that Riot’s high EV-to-hash rate ratio, which stands at 156, is another indicator pointing to its overvaluation. Riot is building a gigawatt site and expecting the arrival of 33,000 MicroBT machines in early 2024.
“In addition, Riot has several business lines that are not reflected in its self-mining hash rate, meaning we should be careful in drawing any valuation conclusions from its high EV-to-hash rate ratio,” Mellerud said.
The crypto mining industry has experienced a strong recovery in 2023, with Marathon and Riot leading the way with share price gains of 170 percent and 228 percent, respectively, as reported by Google Finance.
Mining stocks have outperformed Bitcoin during the same period, which has gained 113 percent year-to-date, according to Cointelegraph Markets Pro data.
In terms of this performance, not all mining analysts believe that Bitcoin mining stocks will continue to rise. Cubic Analytics founder Caleb Franzen noted that Bitcoin has reached its highest price for 2023, while the top mining stocks are still over 75 percent below their year-to-date price peaks.
“If you’re a crypto trader who believes that a crypto and equity bull market is around the corner, I’d implore you to focus on bitcoin mining stocks to generate the most alpha,”
Caleb Franzen, Cubic Analytics founder.
Franzen is concerned that Bitcoin mining companies would need to double their productivity due to the upcoming Bitcoin halving event, saying, “If block rewards are cut in half, the price of BTC would need to double post-halving in order for their business to be just as sustainable as it was pre-halving.”
Currently, Marathon holds the most Bitcoin among mining companies, with 13,726 BTC valued at $486.1 million. Following are Hut 8, Riot and CleanSpark, with holdings of 9,366 BTC, 7,309 BTC and 2,240 BTC, respectively.
Marathon is expanding to reduce costs and diversify its operations in preparation for the Bitcoin halving event. The Florida-based Bitcoin miner is constructing a new 27-megawatt project in Paraguay. This is Marathon’s second international project.
Marathon has partnered with Penguin Infrastructure Holding to establish a new operation near Paraguay’s Itaipu Dam to use hydro energy. Their objective is to achieve 1.1 exahash per second (EH/s) of computing power by the beginning of next year.
Charlie Schumacher, Marathon’s vice president of corporate communications, said many countries can benefit from more affordable and dependable power.
“By diversifying geographically, we have an opportunity to improve our margins, reduce concentration risk in our business and further decentralize the Bitcoin network’s hash rate, potentially all while helping various countries and businesses improve their economics and reduce their emissions,” he said.
Earlier this year, Marathon entered the United Arab Emirates in a joint venture with FS Innovation. By the end of October, the company had 2.3 EH/s of mining capacity operational in Abu Dhabi. Their goal is to reach 7 EH/s by the end of the year.
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