Marathon Digital Holdings, Inc. (MARA) is a digital asset technology company primarily focused on mining cryptocurrencies in the blockchain ecosystem and operates as a digital asset generator in the United States.

In its August production and miner installation update, MARA announced that approximately 25,000 of its previously installed miners were energized in the month, increasing the company’s hash rate back to approximately 3.2 exahashes per second. The company reported having produced 184 Bitcoin in August.

However, U.S. regulatory officials have stated their intentions to regulate the cryptocurrency market. Gary Gensler, Chairman of the Securities and Exchange Commission (SEC) said he supports the idea of Congress giving more power to the Commodity Futures Trading Commission (CFTC) to regulate crypto. Federal Reserve Chair Jerome Powell has stated the sector needs to be “appropriately regulated.” Therefore, crypto miners, such as MARA, might face regulatory pressure on their operations.

Moreover, the odds of a recession due to the continued interest rate hikes have driven a massive sell-off in the risky crypto market this year. MARA has lost 59.7% year-to-date to close its last trading session at $13.26. With the Fed maintaining its hawkish stance, there could be more pain ahead for MARA.

Here are the factors that could affect MARA’s performance in the near term:

Bleak Financials

For the fiscal second quarter that ended June 30, MARA’s revenues decreased 15% year-over-year to $24.92 million. Net loss increased 76% from the prior-year quarter to $191.65 million. Net loss per share rose 60.6% from the same period the prior year to $1.75.

Stretched Valuations

In terms of its forward EV/Sales, MARA is trading at 11.39x, 324.6% higher than the industry average of 2.68x. Its forward EV/EBITDA multiple of 29.80 is 143.8% higher than the industry average of 12.22. In terms of its forward Price/Sales, MARA is trading at 7.60x, 172.1% higher than the industry average of 2.79x.

Negative Profit Margins

MARA’s trailing-12-month EBITDA margin and net income margin of negative 83.53% and 114.11% are significantly lower than their respective industry averages of 13.05% and 4.25%.

Its trailing-12-month ROE, ROTC, and ROA of a negative 34.72%, 12.92%, and 14.26% compare to their respective industry averages of 7.22%, 3.97%, and 2.76%.

Bleak Analyst Expectations

The consensus EPS estimate of a negative $0.40 for the quarter ending September 2022 indicates an 81.8% year-over-year decrease. Likewise, the consensus revenue estimate for the same quarter of $30.34 million reflects a decline of 41.3% from the prior-year period.

Street EPS estimate for the fiscal year 2022 of a negative $2.47 indicate a 586.1% year-over-year decline.

POWR Ratings Reflect Bleak Prospects

MARA’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MARA has a Growth and Sentiment grade of F, in sync with its bleak financial growth and analyst expectations.

The stock also has an F grade for Quality, consistent with its negative profitability margins.

It is part of the F-rated Financial Services (Enterprise) industry. Click here to see the additional POWR Ratings for MARA (Value, Momentum, and Stability).

View all the top stocks in the Financial Services (Enterprise) industry here.

Bottom Line

The cryptocurrency space might be facing heightened regulations in the near term. Moreover, crypto is trending down amid the broader stock market turmoil. On top of it, MARA’s bleak financials and negative profit margins are concerning. Hence, I think the stock might be best avoided now.

How Does Marathon Digital Holdings, Inc. (MARA) Stack Up Against its Peers?

While MARA has an overall POWR Rating of F, one might consider looking at its industry peers, Forrester Research, Inc. (FORR) and Everi Holdings Inc. (EVRI), which have an overall A (Strong Buy) rating, and South Plains Financial, Inc. (SPFI) and Nelnet, Inc. (NNI), which have an overall B (Buy) rating.

MARA shares were trading at $14.02 per share on Friday morning, up $0.76 (+5.73%). Year-to-date, MARA has declined -57.33%, versus a -14.16% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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