At first sight, Coinbase Global (NASDAQ: CURRENCY) It seems like a terrible investment right now.
The share price has more than tripled in 52 weeks. Shares of the cryptocurrency exchange operator trade at a lofty 103x valuation free cash flows and 950 times earnings. I mean, it's enough to make even seasoned growth investors reach for the smelling salt.
Many investors will look no further. Happy to skip this seemingly overvalued crypto stock, they move on to the next idea.
And that could be a big mistake. Coinbase is going through the usual four-year boom-and-bust cycle in the crypto space, and the rising trailing profits have barely broken the break-even line so far.
Let me show you two reasons why you should consider making Coinbase your next stock investment.
1. Coinbase has a sophisticated business
Sure, Coinbase stock looks expensive right now. The cryptocurrency market is waking up from another cold, harsh winter, and the entire industry is soaring. bitcoin (CRYPT: BTC) has increased by 138% compared to the last year, while Ethereum (CRYPT: ETH) won 85%. Low-priced altcoins are rising further, led by solarium (CRYPT: SUN), recording a profit of 730% in one year. Coinbase returned 270% over the same period, and for good reason.
The company does not generate value by holding Bitcoin coins or Ethereum tokens. Their digital currency holdings are minimal and are only used to facilitate their customers' cryptocurrency transactions as seamlessly as possible. Coinbase does not even record changes in digital asset values โโas an item of revenue, but rather as part of its operating costs.
Instead, it makes money from transaction fees, blockchain interest and rewards, and subscription services. You know, pretty much like any regular bank, just based on a different set of financial assets. The financial health of the company is more closely related to the basic interest in cryptocurrencies than to the price of any specific digital currency.
2. This crypto cycle is not like the others.
Coinbase has been around since the early days of cryptocurrencies. Founded in 2012, with only three cryptocurrencies on the market and one Bitcoin worth less than $7, the exchange has experienced three of Bitcoin Halving Cycles. The fourth is coming next week and will halve the rewards for mining Bitcoin again. Each halving so far has driven a dramatic rise in Bitcoin prices, giving the crypto industry another turn in the spotlight and inspiring higher transaction volumes in different types of digital currencies.
So, that scenario is about to repeat itself, but this time things are different. And these are exchange-traded funds (ETFs) linked to the spot price of Bitcoin.
Bitcoin spot ETFs offer investors a radically different way to invest in this novel asset class. Instead of opening a new account on Coinbase or some other crypto exchange, learning a different set of trading rules and processes, and taking direct ownership of digital currencies, you can now trade Bitcoin much like you would buy or sell stocks. common. . The Securities and Exchange Commission (SEC) approved 11 applications for this new type of ETF in January, and they already manage more than $53 billion in Bitcoin assets.
The long-awaited arrival of spot Bitcoin ETFs inspired an early start to the fourth halving rally. As noted above, many cryptocurrencies and related stocks have soared over the past year thanks to expectations halving, ETF plans, and a calmer economic inflation trend. In addition to this strong launch platform, Coinbase will see higher trading volumes thanks to the new ETFs.
But wait a minute: why would that be a good thing? Aren't these ETFs? removing Coinbase system potential cryptocurrency trading volume?
Thanks for asking. It turns out that most ETFs use a third-party custodian service to execute Bitcoin trades and hold the crypto assets in a secure digital wallet. And nine of the 11 ETFs depend on Coinbase.
"We're getting revenue, not just from custody, but from trading and financing," Coinbase CEO Brian Armstrong said on an earnings conference call in February, four weeks after the ETF approvals. "Every institution is starting to own cryptocurrencies, the asset class will be a standard part of every diversified portfolio. The financial system is officially embracing cryptocurrencies. This is really good, and Coinbase is the most trusted partner here."
So, Coinbase found a new source of income and at the same time gave a useful boost to the entire cryptocurrency market. That is beneficial for everyone.
Coinbase is growing towards its rich valuation
Coinbase's valuation drops sharply if the incoming market surge is expected. The stock trades at 12 times average revenue estimates for next year and 108 times earnings projections. And over the past five quarterly reports, the company has surpassed the consensus revenue target by an average of 11%, and earnings have more than doubled Wall Street's average projections.
Past performance is no guarantee of future results, but Coinbase has a proven track record of outperforming analyst estimates, and the company has a unique set of growth-driving balls in the air right now. If this continues through the 12-18 month bullish action of the halving cycle, the current stock price will quickly start to look cheap.
That's why you should consider purchasing some Coinbase shares now. They won't stay this deceptively cheap forever.
Should I invest $1,000 in Coinbase Global right now?
Before you buy shares in Coinbase Global, consider this:
He Varied and Dumb Stock Advisor The analyst team has just identified what they believe are the 10 best stocks for investors to buy now... and Coinbase Global was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow success plan, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. He Stock Advisor The service has more than tripled the performance of the S&P 500 since 2002*.
*Stock Advisor returns from April 8, 2024
Anders Bylund He has positions in Bitcoin, Coinbase Global, Ethereum and Solana. The Motley Fool positions and recommends Bitcoin, Coinbase Global, Ethereum, and Solana. The Motley Fool has a disclosure policy.
2 Reasons to Buy Coinbase Stock Like There's No Tomorrow was originally published by The Motley Fool
