After pulling back following last month’s “flash crash,” can Marathon Digital (NASDAQ:MARA) stock bounce back? Bitcoin (CCC:BTC-USD) may be rebounding, towards its all-time highs above $60,000. But, so far investors have been hesitant to bid up this crypto mining play from its current prices (around $31 per share), back up to prices topping $50 per share.
It’s debatable whether this discrepancy makes sense. On one hand, with their high operating leverage, in theory Marathon shares should have seen a more outsized rebound, instead of a modest uptick.
On the other hand, perhaps investors have realized they put the cart before the horse, and pushed this stock up to a valuation out of sync with its overall prospects.
The truth may be somewhere in the middle. Clearly, it’s to the company’s benefit if Bitcoin continues to gain. But, as I’ve discussed previously, crypto mining is not a license to print money. That is, there’s more that goes into it than simply purchasing mining computers, hooking them up, and reeling in the profits.
With factors like the ever-increasing difficulty rate (it’ll take more computing power over time to mine BTC), as well as the capital-intensive nature of the business, there’s more to be concerned about than excited about with this stock. As investors realize this, it’s going to be tough for the stock to mount a full recovery.
If that’s not bad enough (limited upside potential), there’s still massive downside risk, if crypto prices end up collapsing. Admittedly, there is one crypto mining play (more below) that offers up a decent risk/return proposition. But, it’s not this one.
MARA Stock Fails to Recover, as Bitcoin Bounces Back
Back in early April, when BTC traded for prices similar to where it trades now (just under $59,000), Marathon was trading for prices above $50 per share. When the popular crypto fell below $50,000 post-“flash crash,” this stock fell back to prices under $35 per share.
But, while Bitcoin has bounced back to around $59,000, MARA stock has failed to get back towards its own prior price level. Like I argued above, this makes sense, and makes no sense, at the same time. How so? BTC getting out of its recent downwards trajectory clearly bodes well for this company, and its underlying stock price.
Yet, the days of crypto mining plays shooting “to the moon” in tandem with this asset class may be over. Instead, investors are giving this company, and its rivals, a more critical eye. Looking at recent results, as Alex Sirois did in his April 19 article, it’s looking to be a tough road to profitability for this company, even as it scales up its operations.
If the company fails to deliver, even as BTC remains strong, shares have more of a shot of falling further, than getting back to its high water mark.
Another Mining Play Looks More Appealing
I may lean bearish on MARA stock. But, don’t take that to mean crypto mining itself is inherently a bad business. Why? There’s one play in this space, although it is a gamble, that may be prove preferable to investors.
I’m referring to Support.com (NASDAQ:SPRT). Currently a provider of outsourced customer support services, the former “cigar butt” value stock got turbocharged in March, when it announced its planned merger with privately-held crypto miner Greenidge Generation Holdings.
Yes, investors initially got way too excited as well for this soon-to-be crypto play. Shares zoomed from $2.15 per share, to over $9 per share on the news. But, since the announcement, the stock has pulled back substantially (to around $3.80 per share). But, while it’s led to losses for those who bought it post-merger announcement, at today’s prices it may be a play in this space where risk/return is in your favor.
Between reasonable valuation terms for the merger, and Greenidge’s potential “edge” when it comes to mining (the company owns its own electric power source), this rival, not Marathon, may have a clearer path to profitability and a higher stock price.
The Bottom Line on MARA Stock: Crypto Itself Is Better
This industry remains a “wait and see” type of opportunity. It’s too early to tell whether it can live up to the hype. Or, if the bearish arguments against these plays (mining is harder, and less profitable, than it looks) will prevail. Even if the bulls are proven right, there are much stronger plays out there than Marathon Digital.
What remains your better option? The cryptos themselves. Even as Bitcoin has bounced back towards its prior highs, while MARA stock has not, it makes sense why it’s played out this way. Don’t use it as justification to buy this stock on its recent pullback.
On the date of publication, Thomas Niel held a long position in Bitcoin. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.