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Coinbase Global Inc COIN shares are trading at a premium to the Zacks Financial Transaction Service Market. Its 12-month forward price-to-earnings of 96.60X is much higher than the industry average of 24.12X, the broader sector’s 25.59X and the Zacks S&P 500 composite’s 22.27X.
Its Value Score of F suggests that the stock is not so cheap and indicates a stretched valuation at this moment.
COIN, America’s largest registered crypto exchange, has a market capitalization of $54.7 billion. The average volume of shares traded in the last three months was 8.1 million.
Image Source: Zacks Investment Research
Shares of Robinhood Markets HOOD and Interactive Brokers Group, Inc. IBKR, two other crypto-oriented stocks, are also trading at a multiple higher than the industry average.
An Underperformer
Coinbase shares have plunged 16.9% in the past three months, underperforming its industry, sector and Zacks S&P 500 composite’s return in the same time frame.
COIN vs Industry, Sector & S&P 500 in 3 Months
Image Source: Zacks Investment Research
Negative Analyst Sentiment for COIN
Two analysts covering the stock have revised down their estimates for 2024 and 2025 over the past 30 days. The consensus estimate for 2024 and 2025 has moved 0.4% and 6.9% south, respectively, in the past 30 days.
Though the Zacks Consensus Estimate for 2024 earnings implies a 1300% year-over-year increase, the same for 2025 suggests a 63.7% decrease.
Image Source: Zacks Investment Research
Factors Favoring COIN Stock
Focus on shifting to a subscription-based model enabled COIN to maintain positive EBITDA for the last six consecutive quarters.
COIN has been prioritizing crypto utility as it envisions bringing 1 billion or more people on crypto rail and is thus heavily investing in infrastructure and foundational platforms like Layer 2s, Base and Stablecoins. COIN partnered with Stripe to enhance the global adoption of crypto.
Strengthening banking connections, locking of new licenses and expanding tailor-made product ranges to meet unique customer preferences are aiding COIN in scaling new heights.
Coinbase is increasing its market share in the U.S. spot and derivatives markets, expanding its product portfolio and penetrating the international market. Growth in stablecoins should fuel the company’s top line.
Its liquidity supports strategic investment in growth initiatives and expands its service offerings.
Unfavorable Return on Capital
COIN’s return on equity in the trailing 12 months was 13.9%, lower than the industry average of 46.4%, reflecting inefficiency in utilizing shareholders’ funds.
Image Source: Zacks Investment Research
The return on invested capital in the trailing 12 months was 7.1%, which compared unfavorably with the industry average of 20.6%. This reflects the insurer’s inefficiency in utilizing funds to generate income.
Image Source: Zacks Investment Research
To Conclude
The inherent volatility in crypto prices exposes COIN to operational risks. The failure of its foundational platforms also poses risks. Coinbase, the custodian of client assets, is also exposed to cyber threats.
Nonetheless, efforts to accelerate growth in the crypto market, increase market share in spot trading on consumer and institutional trading platforms and improve trading experience along with continued innovation should help it accelerate growth.
Yet, a premium valuation, negative analyst sentiment and weak return on capital keep us cautious.
Investors who own this Zacks Rank #3 (Hold) stock should retain it, while others may wait for a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
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