Is Marathon Digital's Stock Overvalued Or Undervalued?

Marathon Digital Holdings Inc MARA shares have left the S&P 500 in the dust in 2021, gaining 421% year-to-date.

Marathon’s stock has had a wild ride in recent years, but investors may be wondering whether there’s any value in Marathon shares.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 29.4, nearly double its long-term average of 15.9. Marathon doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Marathon reported a $22.1 million net loss.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.4. Marathon's forward earnings multiple is also very attractive at just 13.1, making Marathon's stock look undervalued.

Marathon’s forward PE ratio is even below its financial sector peers, which are averaging a 15.2 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1.0. Once again, without positive earnings, Marathon doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.2, well above its long-term average of 1.63. Marathon’s PS ratio is 55.3, more than 17 times the S&P 500 average. Marathon's PS ratio is also up 924% over the past three years, suggesting the stock is priced at the high end of its historical valuation range.

Finally, Wall Street analysts see little value in Marathon stock over the next 12 months. The average analyst price target among the four analysts covering Marathon is $57.50, suggesting just 6% upside from current levels.

The Verdict: At today's price, Marathon stock appears to be overvalued based on a sampling of common fundamental valuation metrics.