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 supporting Mellerud's claim is the company's value-to-sales ratio: measuring the value of a company relative to its sales revenue. The higher the ratio, the more overvalued a company is.
The miners with the highest EV/S ratios are Cipher with 7.8, Marathon and Iris Energy each with 5.6, and Riot with 5.5. according according to a November 3 report from Mellerud.
Mellerud attributed the heavyweight's high EV/S ratios to receiving more institutional attention from companies like BlackRock.
"Historically, these companies have been favorites 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 that in the coming months he expects investors to start allocating funds to other players "which could even out the valuation discrepancies between these stocks," he said.
He suggested there are opportunities at better prices with lower EV/S ratios that could be capitalized on.
โThere are huge valuation discrepancies in the Bitcoin mining sector that value investors can take advantage of.โ
Riot's high EV-to-Hashrate ratio of 156 is another indicator pointing towards its overvaluation, says Mellerud.
Mellerud, formerly an analyst at Bitcoin miner Luxor Technology, noted that Riot has "massive growth" in price as it builds its one-gigawatt site and awaits delivery of 33,000 MicroBT machines in early 2024.
"In addition, Riot has several lines of business that are not reflected in its self-mining hashrate, which means we should be careful when drawing valuation conclusions from its high EV-to-Hashrate ratio," Mellerud added.
The Bitcoin mining sector has recovered strongly in 2023, led by Marathon (MARA) and Riot (RIOT), whose share prices have respectively increased by 170% and 228%, according to Google Finance.
He Mining stocks have outperformed Bitcoin during the same time, which has gained 113% so far this year according to Cointelegraph Markets Pro data.
Related: Bitcoin mining can help reduce up to 8% of global emissions: report
Not all mining analysts believe that Bitcoin mining stocks will continue to rise.
Caleb Franzen, founder of Cubic Analytics noted Bitcoin has already hit its year-to-date high price, while top mining stocks are still more than 75% off their year-to-date price highs.
Franzen considered whether Bitcoin mining companies will soon need become twice as productive in light of the upcoming Bitcoin halving event.
โIf block rewards are halved, the price of BTC would have to double after the halving for its business to be as sustainable as it was before the halving.โ
Marathon has the largest Bitcoin holdings among mining companies with 13,726 BTC, worth $486.1 million. They are followed by Hut 8, Riot and CleanSpark with respective holdings of 9,366 BTC, 7,309 BTC and 2,240 BTC.
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