Use the Weakness in Marathon Digital as a Buying Opportunity

Cryptocurrency mining stocks like Marathon Digital (NASDAQ:MARA) have had a massive year. In fact, since the beginning of 2021, MARA stock exploded from a low of $10.53 to around $51 today. All as it tracked Bitcoin (CCC:BTC-USD), which ran from a 2021 low of nearly $29,000 to around $57,000 today.

But the best part? Both MARA and BTC are excessively oversold at the moment.

For one, after pulling back from a high of $83.45, Marathon Digital has been consolidating around the $51 mark. From here, I’d like to see MARA challenge its prior high above $83. That’s doable as the stock continues to track the price movements of Bitcoin.

Secondly, Bitcoin appears to have bottomed out around the high $50,000s and could potentially challenge a prior high of $68,978. If BTC can race higher, Marathon is likely to follow. In short, I’d use the weakness in MARA as a buy opportunity.

MARA Stock: One of the Top Bitcoin Miners

While you can always trade Bitcoin, digital currencies aren’t for everyone. But people can also invest in the next best thing — miners like Marathon Digital, which has a history of tracking higher with BTC prices. Basically, the higher Bitcoin moves, the higher MARA stock climbs.

Consider this: right now, BTC trades above $57,000. However, according to Tom Lee of Fundstrat Global Advisors, Bitcoin could run to $100,000. If that happens, a mining stock like Marathon Digital could easily double if not triple.

Even Ark Invest CEO Cathie Wood says Bitcoin could reach $500,000 by 2026. In fact, Wood noted that if “‘institutional investors move into bitcoin and allocate 5% of their portfolios,’ the value of a bitcoin would rise to around $560,000 by 2026.”

Earnings Growth Has Been Just as Impressive

In its most recent quarter, Marathon Digital said revenue grew to $51.7 million. That’s a 76% increase quarter-over-quarter. It’s also a 6,091% increase year-over-year (YOY) from $835,000 in the third quarter of 2020. The company also produced 1,252 BTC in Q3, a 91% sequential jump from Q2 2021.

The numbers should only improve from here, as Bitcoin prices push higher.

As of Nov. 1, the company also purchased 133,000 miners, according to an investor deck. Additionally, the company has mined 2,516 BTC year-to-date (YTD) and currently holds about 7,453 BTC. Marathon Digital has plans to grow its hash rate 393% from 2.7 EH/s in the third quarter of 2021 to 13.3 EH/s by the middle of 2022 as well.

Finally, this miner plans to be 70% carbon neutral by Q1 2022. By the end of fiscal 2022, it expects to be fully carbon neutral.

The Bottom Line on MARA Stock

When it comes down to it, I’d use the recent pullback in MARA stock as a buy opportunity. Analysts also appear to agree.

For example, DA Davidson analyst Christopher Brendler has a “buy” rating with a target price of $65. According to The Fly, the analyst added that “Marathon’s new rigs are already coming online and its top line is set to grow by over 100%, but the stock’s enterprise value is at just 4-times expected FY23 EBITDA.” Similarly, B. Riley analyst Lucas Pipes also raised his price target from $87 t0 $92 per share, with a “buy” rating.

Not only will MARA stock continue to track higher with Bitcoin prices, but it should also continue to produce exemplary earnings growth. In addition, should BTC explode to a target price of $100,000, shares of Marathon Digital could easily double — if not triple — with patience.

From a current price of around $51, I’d like to see Marathon challenge its prior high of $83.45, near-term. From there, I’d like to see the stock come closer to $100 in the new year.

On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.