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Cryptocurrencies have been around long enough that we can’t really describe them as the next big thing anymore, they’re here and they’re part of the financial landscape.
For stock traders, the rise of crypto offers a unique opportunity not only in the cryptocurrencies themselves, but in the technology that supports them. Blockchain technology that secures cryptography and digital mining operations that generate new units of cryptocurrency require a solid foundation of technical support, electronic infrastructure and power generation and crypto mining companies have emerged to fill this niche.
Compass Point analyst Michael Del Grosso has dived deep into the waters of crypto mining operations, to find the treasure hidden in the blockchain space.
Although we believe that blockchain technology is largely decentralized by nature, we note that several companies are supporting its growth. While Bitcoin tends to make most of the headlines, we believe investors should go beyond Bitcoin and focus on the transformative technology that underpins the larger crypto and blockchain industry. In our opinion, Bitcoin was just the beginning and we believe that the emergence of blockchain technology will be one of the most disruptive technological changes over the next few years, Grosso wrote.
Del Grosso doesn’t just analyze the blockchain mining industry as a whole, he also puts his finger on two stocks he sees as winning. Looking at their details in the TipRanks database, we see that these are Strong Buy stocks that have garnered the positive attention of the Wall Street analyst body. Let’s take a closer look.
Digital Marathon (MARA)
Well, start with Marathon Digital, a bitcoin miner. The company has data centers and IT facilities dedicated to crafting the computations that extend the bitcoin blockchain. Marathon is working on building the largest bitcoin mining operation in North America and currently has a data center in Hardin, MT that is operating at 105 megawatts. The company’s North Dakota facility houses more than 2,000 application-specific integrated circuits.
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Thanks to its large-scale data centers, Marathon is able to control its hash rate and the speed at which it resolves the security units of the blockchain, thus mining bitcoin and its cost of electricity, by buying in bulk. These are the two biggest bottlenecks in the bitcoin mining process.
With a market cap of $ 2.95 billion, Marathon still counts as a small cap stock and on June 15, the company announced that it would enter the Russell 2000 Index as of June 28.
Also in June, Marathon gave its updates on bitcoin holding for May 2021. The company said it holds 5,518 bitcoins, up 226 from the previous month and increased its hash rate to 1.9 EH / s (exa hashes per second). Marathons bitcoin holding is worth over $ 200 million.
The growth of marathons took off in 1Q21. The company reported total quarterly revenue of $ 9.2 million, compared to less than $ 600,000 in the quarter last year. EPS went from a loss of 11 cents per share a year ago to a profit of 87 cents per share. The gain is attributed to unrealized profits from increasing the value of bitcoin holdings.
Based on all of the above, Del Grosso rates MARA as a buy, and its price target of $ 40 indicates its belief in a 33% year-over-year upside potential. (To see Del Grossos’ palmares, click here)
MARA is one of the few Bitcoin miners with an established scale, next-generation hardware, and low-cost power purchase agreements in place. Bitcoin miners are highly correlated with their underlying asset, although we believe MARA should continue to outperform given its large scale. We anticipate that MARA will be able to continue to sufficiently develop its operations thanks to its recent agreement with Compute North finally reaching 10.37 pe / s in 2022 – eventually becoming the second largest miner in North America, ”said Del Grosso .
Overall, the Strong Buy analyst consensus here is unanimous and based on 3 recent analyst reviews. MARA stock is selling for $ 29.77 and its average price target of $ 45.67 suggests a significant rise of 53% for the coming year. (See the analysis of MARA shares on TipRanks)
Riot Blockchain (RIOT)
The second crypto stock examined, Riot Blockchain, takes as its main argument the disruptive power of bitcoin in the monetary universe. Riot is a bitcoin mining company, with subsidiaries in Rockdale, Texas and Massena, New York. The company’s Texas facility, Whinstone US, is home to the largest bitcoin mining facility in North America, with a capacity of 300 megawatts. Currently, Riot uses around 51 megawatts in all of its operations and has a hash rate of 1.6 EH / s.
Riot acquired the Whinstone operations in a transaction that closed in late May. The company paid $ 80 million in cash for the acquisition, as well as a transfer of 11.8 million shares from RIOT to Whinstone.
Due to the deceleration in bitcoin production, miners have to constantly upgrade and speed up their mining facilities. Riot is in the process of adding miners, and by the end of this month (June 2021) expects the hash rate to hit 2.51 EH / s while using some 79 megawatts of power.
In the first quarter of 2021, Riot saw its revenue increase by more than 800% year-on-year, from $ 2.4 million in 1Q20 to $ 23.2 million for the most recent report. The company’s net income reached an all-time high of $ 7.5 million. This income, which translated into 9 cents per share, compared to the loss of $ 4.3 million recorded in the quarter of the previous year.
In his comments on RIOT, Del Grosso considers the size and ability of the company to conduct acquisition activities as key factors.
We believe Whinstone is a transformation for RIOT as it expands its operational footprint and enables the company to either benefit from hosting revenue streams or potentially expanding its own mining footprint with the additional capacity. If the company were to pursue a hosting model, we believe it could generate around $ 50 million per year based on previous disclosures from Northern Data and generate EBITDA margins of around 45% based on our estimates for the accommodation economy, ”Del Grosso wrote.
To that end, Del Grosso gives RIOT a buy rating with a target price of $ 43. This figure implies an increase in the stock of 22% over the next 12 months.
Overall, it’s a stock that Wall Street loves. The Strong Buy consensus is based on 3 recent positive reviews, which makes it unanimous. The shares have an average price target of $ 42.33, which suggests a rise of about 20% from the current price of $ 35.30. (See the analysis of RIOT shares on TipRanks)
To find great ideas for trading crypto stocks at attractive valuations, visit TipRanks Best Stocks to Buy, a recently launched tool that brings together all the information about TipRanks stocks.
Disclaimer: The opinions expressed in this article are solely those of the analysts presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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