Over the past week, Bitcoin and other cryptocurrency prices have crashed, wiping out $1.4 trillion in value from the combined crypto market. Bitcoin prices fell below $33,000 per bitcoin this week, more than 50% below its November peak. The second-largest cryptocurrency by value, Ethereum, crashed to $2,300 per ether, down from almost $5,000 late last year.
Furthermore, the Biden administration is reportedly working on an executive order that emphasizes the potential economic, regulatory, and national security challenges prospectively posed by cryptocurrencies. While Bitcoin’s hash rate, which refers to the measure of computational power per second used when mining, is above 175 exahash per second and recently reached an all-time high, the mining industry could be slowed by the global shortage of semiconductor chips.
Hence, we think this might not be the best time to invest in the cryptocurrency mining stocks Marathon Digital Holdings, Inc. (MARA), Riot Blockchain, Inc. (RIOT), and Hut 8 Mining Corp. (HUT).
Marathon Digital Holdings, Inc. (MARA)
MARA, which is headquartered in Las Vegas, is a digital asset technology company that is focused primarily on mining cryptocurrencies on the blockchain ecosystem and operates as a digital asset generator in the United States.
On December 31, Bernstein Liebhard LLP announced that a securities class action lawsuit had been filed against MARA on behalf of investors who purchased or acquired securities of the company. The lawsuit alleges that MARA failed to disclose material adverse facts about the company’s business, operations, and prospects, particularly about the Beowulf Joint Venture that was subjected to a heightened risk of regulatory scrutiny, and implications of potential regulatory violations. The company is also facing class-action lawsuits from other law firms.
For its fiscal third quarter, ended September 30, MARA’s loss from operations increased 3,123.5% year-over-year to $64.28 million. Its loss before income taxes rose 1,011.7% from the prior-year quarter to $22.17 million. And its total operating expenses climbed 3,999.5% from the same period last year to $115.99 million.
The $0.52 consensus EPS estimate for the quarter ending March 2022indicates a 40.2% year-over-year decrease.
The stock has declined 26.8% in price over the past six months and 49.8% over the past month to close yesterday’s trading session at $19.79.
MARA’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MARA has a Value, Stability, and Quality and a Sentiment grade of D. In the 119-stock Financial Services (Enterprise) industry, it is ranked #117. The industry is rated D. Click here to see the additional POWR Ratings for MARA (Growth and Momentum).
Riot Blockchain, Inc. (RIOT)
RIOT, with its subsidiaries, is engaged in cryptocurrency mining operations in North America. The Castle Rock, Colo., company is focused primarily on Bitcoin mining with a large fleet of publicly-traded miners.
On December 1, RIOT announced that it had acquired Ferrie Franzmann Industries, LLC doing business as ESS Metron. The total consideration payable for the acquisition is approximately $50 million in cash and common stock outflow.
RIOT’s operating loss increased 99.9% year-over-year to $4.21 million in its fiscal third quarter, ended September 30. Its net loss and net loss per share came in at $15.34 million and $0.16, respectively, up 793.6% and 300% from the prior-year period.
Analysts expect RIOT’s EPS to increase 43.8% year-over-year in its fiscal fourth quarter (ended December 2021) to $0.23.
Over the past year, RIOT’s stock has declined 25% in price to close yesterday’s trading session at $13.45. It has declined 57.5% over the past six months.
It’s no surprise that RIOT has an overall F rating, which translates to a Strong Sell in our POWR Rating system. RIOT has an F grade for Stability, Sentiment, and Quality and a D grade for Value. It is ranked #71 of 78 stocks in the Technology – Services industry. The industry is rated D. To see the additional POWR Ratings for Growth and Momentum for RIOT, click here.
Hut 8 Mining Corp. (HUT)
HUT, which is headquartered in Toronto, Canada, operates as a cryptocurrency mining company that engages in industrial-scale bitcoin mining operations in North America.
On January 20, HUT announced that it had agreed to purchase the cloud and colocation data center business from TeraGo Inc. The acquisition is expected to bolster its digital asset ecosystem, but it is anticipated to result in CAD30 million ($23.61 million) outflow.
For the nine months ended September 30, HUT’s net cash used in operating activities increased 4,339.3% year-over-year to CAD52.64 million ($41.42 million), while its net cash used in investing activities rose 2,357.2% from the prior-year period to CAD133.98 million ($105.42 million).
The Street’s $0.11 EPS estimate for the fiscal fourth quarter (ended December 2021) reflects a 52.4% year-over-year decrease.
HUT’s shares have declined 57.4% in price over the past three months and 41.9% over the past month to close yesterday’s trading session at $5.12.
HUT’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. HUT has an F Stability grade and a D Value, Sentiment, and Quality grade. It is ranked #112 in the Financial Services (Enterprise) industry.
In addition to the POWR Rating grades I’ve stated above, one can see HUT ratings for Growth and Momentum here.
MARA shares were trading at $21.12 per share on Friday afternoon, up $1.33 (+6.72%). Year-to-date, MARA has declined -35.73%, versus a -8.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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