Bitcoin (BTC) mining heavyweights Marathon Digital and Riot Platforms are among the most overvalued crypto mining companies relative to their competitors, says MinerMetrics founder and analyst Jaran Mellerud.
The key metric backing Mellerud’s claim is enterprise value-to-sales ratio — measuring a company’s value to its sales revenue. The higher the ratio, the more overvalued a company is.
The miners with the highest EV/S ratios are Cipher at 7.8, Marathon and Iris Energy each at 5.6 and Riot at 5.5, according to a Nov. 3 report by Mellerud.
Mining stocks valuation in terms of EV-to-Sales ratio. Source: MinerMetrics
Mellerud attributed the heavyweight’s high EV/S ratios to receiving more institutional attention from the likes of BlackRock.
“These companies have historically been favored among institutional investors like Blackrock and Vanguard, giving them superior access to capital and higher valuations like the rest of the industry.”
Mellerud told Cointelegraph in the coming months he expects investors to start allocating to other players “which could even out the valuation discrepancies between these stocks,” he said.
He suggested there are better-priced opportunities with lower EV/S ratios that could be capitalized on.
“There exist immense valuation discrepancies in the Bitcoin mining sector that value investors can take advantage of.”
Riot’s high EV-to-Hashrate ratio at 156 is another indicator pointing toward its overvaluation, says Mellerud.
Mining stocks valuation in terms of EV-to-Hashrate ratio. Source: MinerMetrics
Mellerud, previously an analyst at Bitcoin miner Luxor Technology, noted Riot has “massive growth” priced in as it’s constructing its a gigawatt site and awaits the 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 careful in drawing any valuation conclusions from its high EV-to-Hashrate ratio,” Mellerud added.
The Bitcoin mining sector has rebounded strongly in 2023, led by Marathon (MARA) and Riot (RIOT), whose share prices have respectively increased 170% and 228%, according to Google Finance.
The mining stocks have outperformed Bitcoin over the same time, which has gained 113% year-to-date according to Cointelegraph Markets Pro data.
Not every mining analyst believes Bitcoin mining stocks will continue to rise.
Cubic Analytics founder Caleb Franzen noted Bitcoin already reached its year-to-date peak price, while the top mining stocks are still over 75% off year-to-date price highs.
Franzen considered whether Bitcoin mining firms will soon need to become twice as productive in light of the upcoming Bitcoin halving event.
“If block rewards are cut in half, the price of BTC would need to double post-halving in order for their business to be just as sustainable as it was pre-halving.”
Marathon has the largest Bitcoin holdings among mining companies with 13,726 BTC, worth $486.1 million. Hut 8, Riot and CleanSpark follow with respective holdings of 9,366 BTC, 7,309 BTC and 2,240 BTC.
