Marathon Digital and Riot Platforms have been named among the most overvalued entities in the cryptocurrency mining space, according to analysis by MinerMetrics.
MinerMetrics founder and analyst Jaran Mellerud based his assertion on the enterprise value to sales (EV/S) ratio, a benchmark that compares a company’s total value to its sales revenue. The higher the ratio, the more overvalued the company is.
Marathon and Riot hype over BTC mining stocks
Bitcoin (BTC) mining analyst Jaran Mellerud said Marathon Digital and Riot Platforms are among the highest valued companies in the cryptocurrency mining space compared to their competitors.
Cipher Mining tops the list with an EV/S ratio of 7.8, followed by Marathon and Iris Energy at 5.6 and Riot Platforms at 5.5, according to Mellerud Report The date is November 3rd.
The analysis suggests that Marathon and Riot’s higher ratios may be due to their popularity and favor from institutional investors such as BlackRock and Vanguard. It provides them with better access to capital, resulting in a higher market valuation than other companies in the industry.
Melerud expects that investor attention will shift to other mining entities in the near future, which could lead to a more balanced valuation landscape across the industry.
He noted that mining companies with lower EV/S ratios offer more attractive investment opportunities.
“There is a huge valuation gap in the Bitcoin mining industry, and value investors can take advantage of this.”
Jaran Mellerud, founder of MinerMetrics.
Especially for the Riot platform, its EV to computing power ratio is as high as 156, which Mellerud believes indicates that the valuation is too high.
Still, he acknowledged Riot’s ambitious expansion plans, including the construction of a new gigawatt facility and the expected arrival of 33,000 MicroBT mining rigs by early 2024.
Mellerud also noted that Riot has diversified business operations beyond its self-mined hash rate, suggesting its valuation should not be based solely on this metric.
According to Google Finance, the Bitcoin mining industry will recover strongly in 2023, with Marathon and Riot stock prices soaring 170% and 228% respectively.
However, not all analysts are optimistic about the prospects for Bitcoin mining stocks. Caleb Franzen of Cubic Analytics noted that while Bitcoin prices have reached their highest point of the year, mining stocks are still well below their year-to-date highs, down more than 75% in some cases.
Franzen also raised the issue of productivity in the face of the upcoming Bitcoin halving event, which will see block rewards cut in half. He believes that for mining companies to maintain current levels of sustainability after the halving, the price of Bitcoin will need to double.
Among mining companies, Marathon has the largest Bitcoin holdings, with 13,726 Bitcoins worth approximately $486.1 million. Hut 8 Mining Corp, Riot Platforms and CleanSpark followed suit with their own Bitcoin reserves.