04 Oct 2021
Significant differences in valuation for mining companies
In week 35, we explained that mining stocks can be an alternative way to get exposure to bitcoin. This week we highlight the big differences in valuation between the publicly listed mining companies.
We can compare the valuations of mining companies using industry metrics like Market Cap/Hashrate or general metrics like Price/Sales (P/S). Most publicly listed miners have similar cost levels. Therefore, sales is a valid proxy for earnings, which makes P/S an excellent metric for the industry. A miner’s hashrate is their capacity to mine new bitcoin. Therefore, Market Cap/Hashrate considers future earnings, and we can view it as a simplified version of the Forward Price/Earnings ratio. Marathon has the highest valuation measured both by Market Cap/Hashrate and P/S. The company is in a high growth phase and has around 100,000 ASICs for delivery until July 2022. Once deployed, these machines will grow their hashrate by 546%. Marathon is also the best performing mining stock so far in 2021 and is up 205%. On the lower end of the list sits Bitfarms. Even though their stock is up 165% in 2021, they still have the lowest Market Cap/Hashrate and P/S. Bitfarms’ P/S ratio is not much higher than the average P/S ratio of the SP500, which is 3.08 (Yahoo Finance).