In this piece, I have evaluated two financial stocks, Marathon Digital Holdings, Inc. (MARA) and Manhattan Bridge Capital, Inc. (LOAN), to determine the better investment. Based on a fundamental comparison of these stocks, LOAN appears to have better upside potential than MARA for reasons explained throughout this article.
Financial stocks usually perform well in a rising interest rate environment. The Federal Reserve has raised interest rates ten times since last year. However, last month, the Central Bank held rates steady for the first time since January 2022, maintaining the benchmark interest rate between 5% and 5.25%.
Fed officials raised their interest rate forecasts for this year, signaling rates could reach as high as 5.6%, implying two additional rate hikes this year. Due to strong macroeconomic data, the central bank will likely resume rate hikes this month. Further rate hikes could benefit financial companies as high-interest rates help them raise their profit margins.
Financial services companies are leveraging technology to provide innovative and convenient financial services like online banking, wealth management, digital payments, consumer credit, etc. The financial services market is expected to grow at a CAGR of 7.4% to $33.31 trillion by 2026. Post 2026, the market is expected to grow at a CAGR of 6.3% to reach $45.15 trillion by 2031.
MARA’s loss per share during the first quarter was $0.04, narrower than the analyst estimates, while its revenue beat the consensus estimate by 4.8%. On the other hand, LOAN’s EPS beat the consensus estimate by 10%.
MARA’s Chairman and CEO Fred Thiel said, “After weathering a tumultuous 2022 that tested the resilience of our entire industry, this year is off to a strong start as we grew our hash rate, reduced our cost to mine, and improved our balance sheet during the first quarter. With more hash rate coming online in the months ahead, Marathon remains on track to reach our 23 exahash goal near the middle of this year.”
“We remain optimistic that we can achieve our primary growth targets and establish Marathon as one of the largest, most energy efficient, and most technologically advanced Bitcoin mining operations globally,” he added.
Commenting on the company’s first-quarter performance, LOAN’s Chairman of the Board and CEO, Assaf Ran, said, “The high-interest environment contributed to our revenue increase. However, our interest expense almost doubled versus the same quarter a year ago.”
“Generally, we have experienced slower and riskier real estate markets in our geographic areas of operation, together with tight liquidity and less competition. Yet, due to the strength of our loan portfolio, we suffered no losses and impairment expenses,” he added.
On April 11, 2023, LOAN’s Board of Directors authorized a common stock repurchase plan to buy back up to 100,000 common shares in market or off-market transactions. This is expected to create shareholder value.
When it comes to price performance, MARA is the clear winner. MARA’s stock has gained 194.3% in price over the past six months compared to LOAN’s 11.4% decline. In addition, MARA’s stock has gained 98.8% over the past year, compared to LOAN’s 12% decline.
However, here are the reasons I think LOAN could perform better in the near term:
Recent Financial Results
MARA’s total revenues for the first quarter ended March 31, 2023, declined 1.1% year-over-year to $51.13 million. Its operating loss narrowed 73.5% year-over-year to $3.86 million. The company’s net loss narrowed 43.7% year-over-year to $7.24 million. Its loss per share narrowed 58.3% year-over-year to $0.05.
For the fiscal first quarter ended March 31, 2023, LOAN’s total revenues increased 13.4% year-over-year to $2.40 million. Its net income declined 11.6% over the prior-year quarter to $1.26 million. Its EPS came in at $0.11, representing a decline of 8.3% year-over-year.
Expected Financial Performance
MARA’s EPS for fiscal 2023 is expected to be positive. Its EPS for fiscal 2024 is expected to increase 149.1% year-over-year to $0.49. Its fiscal 2023 and 2024 revenue is expected to increase 259.9% and 33.8% year-over-year to $423.79 million and $567.06 million.
LOAN’s EPS for the quarter ending December 31, 2023, is expected to increase 20% year-over-year to $0.12.
Profitability
MARA’s trailing-12-month revenue is 17.4 times what LOAN generates. However, LOAN is more profitable, with a Return on Assets and Return on Equity of 9.72% and 11.71%, compared to MARA’s negative 8.33% and 103.20%, respectively. Also, LOAN’s asset turnover of 0.09x compares to MARA’s 0.08x.
Valuation
In terms of forward GAAP P/E, LOAN is currently trading at 10.69x, 87.5% lower than MARA’s 85.67x. LOAN’s trailing-12-month Price/Book ratio of 1.29x is 75.1% lower than MARA’s 5.18x.
Thus, LOAN is relatively more affordable.
POWR Ratings
MARA has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. On the other hand, LOAN has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MARA has an F grade for Value, in sync with its stretched valuation. On the other hand, LOAN’s mixed valuation justifies its C grade for Value.
MARA has a D grade for Quality, consistent with its poor profitability. On the other hand, LOAN has a B grade for Quality, in sync with the company’s high profitability.
MARA’s 5.04 beta justifies its F grade for Stability. On the other hand, LOAN’s 0.59 beta is consistent with its B grade for Stability.
Of the 101 stocks in the Financial Services (Enterprise) industry, MARA is ranked #97, while LOAN is ranked #5 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, and Sentiment. Click here to view MARA’s ratings. Get all the ratings of LOAN here.
The Winner
The financial services industry is well-positioned to benefit from the Fed’s expected rate hikes this year. Moreover, with technological improvements and the growing adoption of digital financial services, the financial services industry is well-positioned for growth.
Although MARA remains confident of achieving its growth targets, it could be wise to avoid the stock due to its exposure to risky and volatile assets like cryptocurrency. On the other hand, LOAN is expected to benefit from the higher mortgage rates. Therefore, LOAN could be a better choice now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Financial Services (Enterprise) industry here.
What To Do Next?
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MARA shares fell $0.19 (-1.12%) in premarket trading Tuesday. Year-to-date, MARA has gained 394.74%, versus a 15.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Which Financial Stock Is Better for Your Portfolio: Marathon Digital (MARA) or Manhattan Bridge (LOAN) StockNews.com
