Cryptocurrency analyst Jaran Mellerud, the founder of MinerMetrics, has highlighted that Marathon Digital and Riot Blockchain are among the most highly valued cryptocurrency mining companies relative to their competitors. This assessment is based on the enterprise value-to-sales (EV/S) ratio, a measure of a company's value relative to its sales revenue. Companies with higher EV/S ratios are considered more overvalued. According to Mellerud's report on November 3, the mining companies with the highest EV/S ratios are Cipher at 7.8, Marathon and Iris Energy at 5.6 each, and Riot at 5.5. Mellerud attributes these high ratios to greater institutional attention from firms like BlackRock.
Mellerud believes that in the coming months, investors may start diversifying their portfolios to other stocks, potentially narrowing the valuation differences among these mining companies. He advises value investors to explore opportunities with better prices and lower EV/S ratios. He notes that there is a substantial valuation gap in the Bitcoin mining industry, which presents opportunities for value investors.
Riot's EV-to-hashrate ratio is notably high at 156, indicating that the company is overvalued. Mellerud points out that Riot has priced in "massive growth" as it builds gigawatt-scale sites and awaits the delivery of 33,000 MicroBT machines in early 2024. He also notes that Riot has several business lines not reflected in its self-mined hashrate, making it necessary to exercise caution in drawing valuation conclusions from its high EV-to-hashrate ratio.
The Bitcoin mining sector has seen a strong resurgence in 2023, with Marathon and Riot Games leading the way, as their stock prices have risen by 170% and 228% respectively. However, not all mining analysts share the belief that Bitcoin mining stocks will continue to rise. Caleb Franzen, founder of Cubic Analytics, pointed out that Bitcoin has reached its year-to-date peak price while leading mining stocks remain more than 75% below their year-to-date price highs.
Franzen also raised concerns about the upcoming Bitcoin halving event, suggesting that Bitcoin mining companies may need to double their productivity in response to the reduced block reward. He explained that a price doubling following the halving is essential for these businesses to maintain their sustainability. Marathon is the largest Bitcoin holder among mining companies, with 13,726 Bitcoins worth $486.1 million. Hut 8, Riot, and CleanSpark follow, holding 9,366 BTC, 7,309 BTC, and 2,240 BTC, respectively.
