Few asset classes have managed to outpace the cryptocurrency space in 2020. Bitcoin and other digital currencies that were range bound for almost three years, surged higher to touch record highs in 2021.
This surge in crypto prices have caused the companies in the cryptocurrency sector to soar as well. These are companies that invest in the blockchain industry and mine bitcoin and other cryptocurrencies.
Today we are going to compare two well-known companies within the blockchain industry: Riot Blockchain and Marathon Patent Group. These companies have seen their shares skyrocket in just the past couple of months.
The case for Riot Blockchain
Shares of Riot Blockchain (RIOT) are trading at $25.20 which means they have gained a staggering 1,700% in the last year, valuing the company at a market cap of $1.95 billion. Riot Blockchain is focused on building and operating the blockchain technology ecosystem.
It is involved in the mining of digital currencies like Bitcoin. Further, the company also provides accounting, audit and verification services for blockchain-based assets.
In the first nine months of 2020, Riot Blockchain increased mining revenue by 21% year over year to $6.7 million, up from $5.6 million in the prior-year period. It increased cryptocurrency mining revenue margin to 38%, up from 28% in the above-mentioned time period.
In Q3, Riot’s mining revenue was up 41.5% year-over-year at $2.4 million. It produced 730 newly minted bitcoins in the first three quarters of 2020. Its quarterly loss improved to $0.04 per share from a loss of $0.31 per share in Q3 of 2019.
Riot continues to expand its operations at an aggressive pace. In December it purchased another 1,500 next generation S19 Pro and S19j pro Antminers from BitmainTech. This deployment might increase Riot’s mining hash rate capacity by 65%.
Analysts tracking the firm expect the company’s sales to report sales of $10.4 million in 2020. Its revenue growth is forecast to surge higher by 412.5% to $53.3 million which means the stock is trading at a forward price to 2021 sales multiple of 36.5x which is really steep.
Should you remain bullish on Marathon Patent Group?
Another cryptocurrency stock is Marathon Patent Group (MARA), a company whose shares have surged 2,200% in the last year. Marathon is also a digital asset technology company that mines cryptocurrencies.
In the third quarter of 2020, the company generated sales of $835,184 which was 159.6% higher than sales of $321,176 in the prior-year period. In the first nine months of 2020, its sales were up 88.7% at $1.71 million.
However, the company is grappling with a negative gross margin as its cost of revenue was $1.63 million in Q3 while operating loss was almost $2 million. While Marathon is forecast to report sales of $4.4 million in 2020 its revenue might grow 35 times to $161.2 million in 2021.
Given a market cap of $1.55 billion, Marathon Patent Group stock is trading at a forward price to 2021 sales multiple of 9.6x which is very reasonable if it can sustain its high growth rates.
Both Riot and Marathon are part of a sector that is expected to explode by crypto enthusiasts. Alternatively, investors should also brace for volatility in this vertical given the lack of regulation and speculation that surrounds this asset class.
The stock price of the two companies will move in tandem with that of bitcoin and other digital currencies. For example, shares of Riot fell from a record high of $28.4 in December 2017 to $1.35 in December 2018 when bitcoin lost 80% in market value.
If you are bullish on bitcoin over the long-term, it seems Marathon is a better investment right now, given its lower valuation. Further, both the companies are expected to be profitable in 2021.
While Marathon’s expected earnings of $1.10 indicates a price to earnings multiple of 22x, Riot’s expected earnings of $0.02 indicates a price to earnings multiple of a sky-high 1,445x.
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RIOT shares were trading at $25.96 per share on Friday morning, down $2.94 (-10.17%). Year-to-date, RIOT has gained 52.80%, versus a 0.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More…