Value-focused investors are constantly seeking stocks priced below their intrinsic value. Marathon Digital Holdings Inc (MARA, Financial) is one such stock that warrants attention. Currently priced at $11.31, Marathon Digital Holdings (MARA) recorded a daily loss of 8.54% and a 3-month increase of 16.35%. According to its GF Value, the stock's fair valuation stands at $23.56.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from a unique method. The GF Value Line on the summary page provides an overview of the stock's fair value. This value is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
The GF Value Line indicates the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Considering the Risks
Despite Marathon Digital Holdings Inc (MARA, Financial)'s seemingly attractive valuation, it's crucial to consider certain risk factors associated with the company. These risks are primarily reflected through its low Altman Z-score of -0.01. These indicators suggest that Marathon Digital Holdings, despite its apparent undervaluation, might be a potential value trap. This complexity underscores the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-Score
The Altman Z-score is a financial model created by New York University Professor Edward I. Altman in 1968. It predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Snapshot
Marathon Digital Holdings focuses on mining digital assets. It owns cryptocurrency mining machines and a data center to mine digital assets. The company currently operates in the Digital Currency Blockchain segment. Its cryptocurrency machines are located in the United States. Despite the promising business model, the company's financial health may be weak, as suggested by its low Altman Z-Score.
Dissecting Marathon Digital Holdings's Low Altman Z-Score
A closer look at Marathon Digital Holdings's Altman Z-score reveals potential financial distress. The Working Capital to Total Assets ratio, a measure of short-term liquidity, has been declining over the past few years (2021: 0.01; 2022: 0.00; 2023: 0.00). This decline suggests potential liquidity issues that the company may be facing. Additionally, the EBIT to Total Assets ratio (2021: -0.06; 2022: -0.13; 2023: -0.38) indicates that Marathon Digital Holdings might not be utilizing its assets to their full potential to generate operational profits, negatively affecting the company's overall Z-score.
Conclusion: A Potential Value Trap?
Despite its seemingly attractive valuation, Marathon Digital Holdings might be a potential value trap, considering its low Altman Z-Score and other risk factors. This underlines the importance of thorough due diligence in investment decision-making. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
