: Marathon Digital stock slide continues, but analyst calls selloff ‘overdone’

United States

Shares of Marathon Digital Holdings Inc. are extending their decline Tuesday, but one analyst says that the stock’s sharp selloff looks “overdone.”

Marathon Digital MARA, +0.13% shares are off 1.5% in Tuesday trading after falling 27.0% in Monday’s session.

The crypto-mining company filed its 10-Q with the Securities and Exchange Commission Monday, and the document included a mention that “the SEC may be investigating whether or not there may have been any violations of the federal securities law” surrounding the company’s 2020 agreements over the building of a data center in Hardin, Mont. The agreement involved the issuance of restricted stock.

During the September quarter, Marathon Digital and some of its executives received “a subpoena to produce documents and communications” around the data center, per Monday’s filing.

Marathon Digital also announced Monday morning that it planned to offer $ 500 million in convertible notes. The company later disclosed upon pricing that the offering was upsized to $ 650 million.

“While there was an SEC investigation in the 10-Q, we think the pullback was more due to the convert, which was upsized to $ 650 million,” wrote D.A. Davidson analyst Chris Brendler. “We don’t see much risk around the potential securities violation and would use any further weakness as a buying opportunity.”

Brendler called Marathon Digital’s selloff “overdone” and wrote that the stock looks more attractive after the pullback. “With the stock trading at 9x our updated 2023 adjusted EPS estimate, the risk/reward has improved dramatically in just 24 hours,” he said in his note to clients.

Even with the stock’s selloff this week, it’s up 61% over the past three months and up more than 400% so far this year. Short interest in Marathon Digital represents 17.0% of the float, according to data from FactSet.

In comparison, the S&P 500 index SPX, +0.52% has gained 5.1% the past three months.