If you hold shares in Coinbase Global or are contemplating your next investment decision, you are in good company. The stock has experienced significant fluctuations recently, prompting investors to keep a close watch on whether this momentum can be sustained. Over the past year, Coinbase has achieved an impressive return of 95.0%. Extending this view to the last three years reveals an astonishing gain of 433.0%. Such remarkable growth raises questions: Is the stock still on an upward trajectory, or are we nearing a point of excessive risk? Much of this volatility is linked to changing regulatory landscapes and evolving perceptions of cryptocurrency, particularly within institutional investment circles. Notably, discussions around potential White House initiatives to include cryptocurrencies and alternative assets in 401(k) plans have sparked both enthusiasm and new speculation, contributing to the current risk assessment. Additionally, there are rumors of Coinbase pursuing international expansion, particularly in India, which underscores the company’s ambitious growth strategy. Conversely, U.S. banks have recently lowered their price targets following disappointing earnings results. Nonetheless, Coinbase has still managed to post a 29.1% increase this year and a 3.8% rise in the last month. This leads to a crucial question regarding its valuation: From a traditional standpoint, Coinbase appears undervalued in only 1 of 6 metrics used for valuation, giving it a low value score. While this doesn’t scream “bargain,” the complexities inherent in the crypto space often tell a more intricate story. Let’s explore the primary valuation methods analysts employ and why traditional scores may not capture the complete picture. Stay tuned for a comprehensive analysis on accurately valuing this company at the conclusion of the article.
Coinbase Global’s Valuation Score
Currently, Coinbase Global’s performance scores just 1 out of 6 in our valuation assessments. Discover the other potential red flags identified in our detailed valuation breakdown.
Approach 1: Excess Returns Analysis
The Excess Returns valuation model evaluates a company’s efficiency in utilizing investors’ funds to generate returns that exceed the cost of that capital. This method examines Coinbase’s capacity to yield profits based on its book value—effectively, its net asset base—beyond the returns shareholders expect as compensation for taking risks. The following highlights emerged from the Excess Returns analysis for Coinbase Global: Book Value stands at $47.17 per share, with a stable Earnings Per Share (EPS) estimated at $8.77 (derived from weighted future Return on Equity projections from seven analysts). The Cost of Equity is pegged at $4.61 per share, leading to an Excess Return of $4.16 per share and an average Return on Equity of 15.65%. Meanwhile, the stable Book Value is calculated to be $56.02 per share (based on weighted future Book Value estimates from two analysts). Based on this Excess Returns analysis, Coinbase’s estimated fair value per share is approximately $136.97. Compared to its current market price, this suggests the stock is overvalued by 142.3%, indicating that the market is anticipating returns or growth levels that are not currently supported by the company’s fundamentals. The conclusion is clear: OVERVALUED. For further insights into how we derived this Fair Value for Coinbase Global, refer to the Valuation section of our Company Report.
Approach 2: Price-to-Earnings Ratio
For profitable enterprises like Coinbase, the price-to-earnings (PE) ratio is often viewed as a critical measure of valuation. This ratio enables investors to quickly assess how much they are paying for each dollar of earnings, making it particularly useful when a company consistently generates profits. However, what constitutes a “normal” or “fair” PE ratio can vary greatly depending on growth rates and the associated business risks. Typically, companies that are growing rapidly, are of higher quality, and bear less risk can justify higher multiples. Presently, Coinbase trades at a PE ratio of approximately 29.8x. In comparison, the industry average for Capital Markets firms stands at 27.3x, while competitors average slightly higher at 34.3x. At first glance, Coinbase’s pricing appears aligned with the sector average and even somewhat lower than its peers, which suggests that market sentiment is not excessively optimistic compared to similar companies. To further contextualize this, we can introduce the “Fair Ratio,” a proprietary metric from Simply Wall St that incorporates company-specific elements such as expected earnings growth, profit margins, market position, and risk profile. Unlike basic peer or sector averages, this fair multiple provides a more nuanced perspective regarding what the stock “should” be priced at. For Coinbase, the Fair Ratio is around 25.2x. Given that the current PE multiple exceeds this figure by a few points, it implies that the market is demanding a premium that may not entirely align with the underlying fundamentals and associated risks at this time. The result: OVERVALUED.
Understanding Coinbase Global Through Narratives
Previously, we mentioned a superior method to grasp valuation, so let’s delve into the concept of Narratives. A Narrative encompasses your understanding or viewpoint regarding a company, reflecting your beliefs about its future potential, including projected revenues and profits, as well as the associated risks and catalysts. This approach allows you to connect the “why” of a business’s trajectory to detailed forecasts and ultimately, a fair value estimate for the stock. Narratives are intuitive and powerful, and can now be easily accessed through Simply Wall St’s Community page, where millions of investors share and explore Narratives for companies like Coinbase. With Narratives, you can quickly compare your valuation of a stock to its market price, aiding in your decisions about when to buy or sell. As new information arises—such as earnings reports, significant news, or regulatory developments—Narratives dynamically and transparently update, ensuring your analysis remains relevant. For instance, regarding Coinbase Global, recent analyst Narratives have varied significantly: the most optimistic anticipate a price target as high as $510, while the most pessimistic predict fair value closer to $185, highlighting starkly different views on future growth, risks, and the evolving role of blockchain in finance. Narratives empower you to navigate the complexities and shape your investment decisions grounded in your own evidence-based convictions. Do you believe there is more to uncover about Coinbase Global? Create your own Narrative to contribute to the Community!
Disclaimer
This article is intended for informational purposes only. It offers commentary based on historical data and analyst projections, employing an unbiased methodology. It is not financial advice and does not constitute a recommendation to buy or sell any stock, nor does it take into account individual financial objectives or circumstances. Our aim is to provide long-term focused analysis driven by fundamental data. Please note that our evaluations may not reflect the latest price-sensitive announcements or qualitative factors. Simply Wall St holds no positions in any of the stocks mentioned.
