Is Marathon Digital Holdings (MARA) Underrated? Or A Trap

25 Okt 2023

Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Marathon Digital Holdings Inc (NASDAQ:MARA). The stock, which is currently priced at $10.58, recorded a gain of 20.91% in a day and a 3-month decrease of 36.96%. The stock's fair valuation is $26.24, as indicated by its GF Value.

Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:

1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.

2. Based on the company's past returns and growth.

3. Future estimates of the business performance.

We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.

Identifying Potential Risk Factors
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Marathon Digital Holdings should not be ignored. These risks are primarily reflected through its low Altman Z-score of -0.37. These indicators suggest that Marathon Digital Holdings, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.

Company Introduction
Marathon Digital Holdings Inc focuses on mining digital assets. It owns cryptocurrency mining machines and a data center to mine digital assets. The Company currently operates in the Digital Currency Blockchain segment. The Company's Crypto-currency Machines are located in the United States.

Marathon Digital Holdings's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Marathon Digital Holdings's Altman Z-score reveals Marathon Digital Holdings's financial health may be weak, suggesting possible financial distress:

The first factor we need to consider is a measure of short-term liquidity. This is calculated as the working capital divided by total assets. When we evaluate the data provided: 2021: 0.01; 2022: 0.00; 2023: 0.00, it's clear that Marathon Digital Holdings has experienced a declining trend in its Working Capital to Total Assets ratio over the past few years. This decline suggests potential liquidity issues that the company may be facing. The ratio is strikingly low, which unfavorably influences the overall Z-Score.

The EBIT to Total Assets ratio serves as a crucial barometer of a company's operational effectiveness, correlating earnings before interest and taxes (EBIT) to total assets. An analysis of Marathon Digital Holdings's EBIT to Total Assets ratio from historical data (2021: -0.06; 2022: -0.13; 2023: -0.38) indicates a recent dip following an initial rise. This reduction suggests that Marathon Digital Holdings might not be utilizing its assets to their full potential to generate operational profits, which could be negatively affecting the company's overall Z-score.

In conclusion, despite its attractive valuation, Marathon Digital Holdings (NASDAQ:MARA) displays several risk factors that suggest it might be a potential value trap. The company's declining Working Capital to Total Assets ratio and EBIT to Total Assets ratio, along with its low Altman Z-Score, indicate potential financial distress. Therefore, careful due diligence is recommended before making an investment decision.