By Aditya Raghunath (Fri, October 22, 2021)
Bitcoin reached a record high on Wednesday which resulted in a spectacular rally in cryptocurrency mining stocks, such as Hut 8 Mining (HUT – Get Rating) and Marathon Digital (MARA – Get Rating). That’s because stock prices of crypto mining stocks are closely related to the digital asset they mine.
Since the start of 2020, shares of Hut 8 Mining have gained more than 1,300% in cumulative returns. Comparatively, Marathon Digital has returned a staggering 5,670% to investors in less than two years. In this period, Bitcoin prices have surged by less than 1,000% in this period.
If you’re bullish on Bitcoin over the long term, you might want to consider investing in Hut 8 Mining or Marathon Digital. Today I’ll analyze both of these stocks to determine which I believe is currently the better investment.
The bull case for Hut 8 Mining
In case you want to mine your cryptocurrency such as Bitcoin, you will need to invest over $10,000 to purchase mining equipment (read machines with high computing power).
Alternatively, you can invest in companies such as Hut 8 Mining that have already set up mining rigs over the years. In fact, Hut 8 is now looking to scale up mining operations which will more than double its hash rate.
Hut 8 Mining confirmed it mines between 12 and 18 bitcoins each day. At current prices, it will mine between $725,000 and $1 million worth of bitcoins per day. The rising prices of cryptocurrencies allowed Hut 8 to increase revenue by 263.5% year over year to $33.55 million. Its operating income more than tripled to $8.12 million.
At the end of Q2, it owned 4,450 bitcoins valued at $278 million right now. But, unlike other crypto miners, Hut 8 does not sell all the digital assets mined by the company. It further increases shareholder returns by lending a portion of these digital assets and earns close to 6.2% in interest payments each year, compounding its total gains in the process.5 STOCKS READY TO BREAKOUT!
Valued at a market cap of $1.9 billion, Hut 8 Mining is forecast to increase its revenue by 331% to $175.36 million in 2021 and by 116% to $379 million in 2022. Comparatively, its earnings per share are forecast to increase from $0.06 in 2020 to $0.89 in 2022, making it one of the cheapest mining stocks in the crypto space.
The bull case for Marathon Digital
A stock that has crushed the broader market in the last two years, Marathon Digital Holdings is currently valued at a market cap of $5.15 billion. At the start of 2021, the company raised $200 million to solidify its balance sheet and boost liquidity. It then raised $250 million in a few weeks to purchase 4,800 bitcoins worth $150 million. Today, its investment will be worth more than $300 million.
The company ended Q2 with close to $350 million in cash and it remains debt-free. It also aims to increase the hash rate to 10 exahashes per second in 2022, up from 1.4 EH/s in early 2021, improving mining capabilities significantly.
In the first six months of 2021, Marathon Digital mined 846 Bitcoins and with its current hash rate of 2 EH/s, this number will increase to 200 bitcoins each month.
Analysts tracking the stock expect Marathon Digital to increase sales by 5,000% to $225 million in 2021 and by 250% to $790 million in 2022. This rapid expansion in revenue will allow the company to improve earnings per share to $4.16 in 2022 from a loss per share of $0.12 in 2020.
The final verdict
We can see how rising cryptocurrency prices have allowed Marathon Digital and Hut 8 Mining to accelerate top-line growth in recent months. But investors should also understand that these growth estimates can easily trend lower in the case of a sell-off in the crypto world. Right now, I believe Hut 8’s lower valuation metrics make it a better stock compared to Marathon Digital.