Bitcoin (BTC) mining heavyweights Marathon Digital and Riot Platforms are among the most overvalued crypto mining companies compared to their competitors, says MinerMetrics founder and analyst Jaran Mellerud.
The key metric that supports Mellerud’s claim is the enterprise value-to-sales ratio – it measures the value of a company in relation to its sales revenue. The higher the ratio, the more overvalued a company is.
According to a November 3 report from Mellerud, the miners with the highest EV/S ratios are Cipher at 7.8, Marathon and Iris Energy at 5.6 each, and Riot at 5.5.
Evaluating mining stocks in terms of EV to sales ratio. Source: MinerMetrics
Mellerud attributed the heavyweight’s high EV/S ratios to it receiving more institutional attention from the likes of BlackRock.
“These companies have historically been popular with institutional investors such as Blackrock and Vanguard because, like the rest of the industry, they had better access to capital and higher valuations.”
Mellerud told Cointelegraph he expects investors to begin allocating to other players in the coming months, “which could smooth out the valuation differences between these stocks,” he said.
He suggested that there were cheaper options with lower EV/S ratios that could be exploited.
“There are immense valuation differences in the Bitcoin mining sector that value investors can exploit.”
Riot’s high EV-to-hashrate ratio of 156 is another indicator of its overvaluation, says Mellerud.
Evaluating mining stocks in terms of EV to hashrate ratio. Source: MinerMetrics
Mellerud, previously an analyst at Bitcoin miner Luxor Technology, noted that Riot has priced in “massive growth” as it builds its 1 gigawatt site and is awaiting delivery of 33,000 MicroBT machines in early 2024.
“In addition, Riot has several business lines that are not reflected in its self-mining hashrate, meaning we should be cautious when drawing valuation conclusions from the high EV-to-hashrate ratio,” Mellerud added.
The Bitcoin mining sector has rallied strongly in 2023, led by Marathon (MARA) and Riot (RIOT), whose stock prices have increased by 170% and 228%, respectively, according to Google Finance.
Mining stocks over the same period outperformed Bitcoin, which has gained 113% year-to-date, according to data from Cointelegraph Markets Pro.
Related: Bitcoin mining can help reduce up to 8% of global emissions: report
Not every mining analyst believes that Bitcoin mining stocks will continue to rise.
Caleb Franzen, founder of Cubic Analytics, noted that Bitcoin has already reached its year-to-date high price, while top mining stocks are still over 75% below year-to-date high prices.
Franzen pondered whether Bitcoin mining companies will soon have to become twice as productive given the upcoming Bitcoin halving.
“If block rewards are halved, the price of BTC would have to double after the halving for their business to be as sustainable as it was before the halving.”
Marathon has the largest Bitcoin holdings among mining companies, with 13,726 BTC worth $486.1 million. This is followed by Hut 8, Riot and CleanSpark with respective holdings of 9,366 BTC, 7,309 BTC and 2,240 BTC.
Magazine: How to protect your crypto in a volatile market: Bitcoin OGs and experts weigh in
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers