Summary Coinbase's share quote has doubled since November due to the surge in Bitcoin's price and blind speculation about newly approved crypto ETFs. Analyst projected growth rates for the company are minimal, with profitability largely dependent on holding rising cryptocurrency prices. I now consider Coinbase the most overvalued large-cap stock on Wall Street, surpassing even NVIDIA and Costco, based on extreme price to earnings, sales, and book value. I wrote a Strong Sell article on Coinbase Global, Inc. ( COIN ) at $128 a share back in November here . Since then, Bitcoin ( BTC-USD ) has rocketed in price to all-time highs above $70,000 on the SEC approval of easily accessed and traded ETF products in America. This situation in turn has led to a rush of euphoric investor buying and speculation in Coinbase, one of the leading cryptocurrency exchanges in the world. All told, COIN's share price has DOUBLED the November quote again to a high of $271 days ago! StockCharts.com - Bitcoin/USD, 12 Months of Daily Price & Volume Changes Yet, the company is still projected to grow its business only slightly, with minor profitability mostly a function of holding rising cryptocurrency for its own account. Net investment and interest income of $99 million last fiscal year surpassed final net income of $94 million, meaning the actual operating business was breakeven to a money loser. In terms of an overvalued bubble-like move, COIN's bottom of $33 in early 2023 looks miles away. I will point out, at that time I correctly mentioned in this January 2023 article Coinbase was overdue for a large rebound in price, when few analysts wanted to touch this security. The problem is the reversal ballooned into something different. Mania buying has pushed price all the way back to my first bearish call on the stock around $243 in September 2021 here . Trading above $250 a share, I now rate Coinbase as "the" most overvalued large-cap stock on Wall Street in March 2024. It even outstrips the nutty valuation levels for NVIDIA ( NVDA ) and Costco ( COST ), as the next in line for too much irrational investor confidence. For relative sizing, only about 10 traditional banks/brokers in the U.S. have an equity market capitalization higher than Coinbase's $65 billion. Amazingly, with little in the way of revenue and profits, COIN's market value is approaching the company worth numbers of Charles Schwab ( SCHW ) or Citigroup ( C ), with capitalizations slightly over $100 billion. As such, the only logical investment rating I give the stock is a continuation of my Strong Sell view. Let me explain why. Dramatic Business Overvaluation The primary issue I have with the massive bubble jump in share pricing is business fundamentals do not back up the rise. The definition of a bubble in stocks is price rises far faster than underlying business growth. In fact, most analysts believe the arrival of cryptocurrency ETFs will actually take accounts and sales AWAY from Coinbase, net-net. Projecting a decent business improvement in 2024 on the spike in Bitcoin attention (and other computer-based currency creations), sales and EPS are expected to stagnate or decline during 2025-26. Seeking Alpha Table - Coinbase Global, Analyst Estimates for 2024-26, Made March 11th, 2024 Remember, actual 2023 revenues were lower than 2022, and 2022 sales were less than half of 2021! Is a no-growth business really worth 5x more in price than 12 months ago? Below is a graph of the insane "forward" P/E multiple for Coinbase vs. regular brokers/banks/exchanges you can own as alternatives (each with actual earnings built over decades). My sort peer group includes Goldman Sachs ( GS ), Charles Schwab, Morgan Stanley ( MS ), Interactive Brokers ( IBKR ), JPMorgan Chase ( JPM ), Citigroup, Bank of America ( BAC ), Wells Fargo ( WFC ), and Intercontinental Exchange ( ICE ). If 200x proves the best P/E ratio you can get from COIN (assuming a cryptocurrency bust is approaching), new investors at $250 will not be happy with future investment returns. YCharts - Coinbase Global vs. Major Broker/Bank Peers, Forward Estimated P/Es, 1 Year When price was under $50 a year ago, you could make the argument some value existed on price to sales, with comparable numbers to Charles Schwab and Intercontinental Exchange. But $250 is a whole different ballgame. 20.8x trailing sales (not projected to grow much over time mind you) is a 600% premium to the median group average under 3x today! YCharts - Coinbase Global vs. Major Broker/Bank Peers, Price to Sales Ratio, 1 Year Another way to view valuations for banks and brokers, especially low profit-margin enterprises, is by comparing the share price to underlying accounting book value. Believe it or not, a year ago, Coinbase stood near the middle of the peer-pack average on this metric at 1.3x. Today, price to BV has ballooned to nearly 9.8x, far away from the median average of 1.7x (470% premium). YCharts - Coinbase Global vs. Major Broker/Bank Peers, Price to Book Value, 1 Year Seeking Alpha's Quant Valuation Grade for Coinbase Global is an "F," with only one of 19 stats not sitting at an F or worse score (fundamentals in negative territory). So, if you are searching for an investment with solid real-world backing of your capital, Coinbase is a complete failure above $250. Seeking Alpha Table - Coinbase Global, Valuation Grade on March 12th, 2024 Weak Technical Indicators If you can ignore the massive share price surge, and focus just on underlying momentum stats, the monster +400% quote gain over less than 52 weeks has NOT been very impressive for long-term technical support. For example, the Accumulation/Distribution Line peaked in July and again in December, when price was $115 and $185 respectively. The Negative Volume Index has been highlighting sizable selling on low-volume days. And, the 14-day Chaikin Money Flow reading has been a net negative number (in summation) since the second week of January, meaning considerable money has been taken out shares from $140 in price. What the charts are telling me is amazing blind inflows of buying have been the underlying theme producing gains for two months running. Isn't that the definition of an unsustainable boom in pricing? StockCharts.com - Coinbase Global, 12 Months of Daily Price & Volume Changes Final Thoughts If spectacular business growth rates were taking place at Coinbase, you might be able to justify the sharp share gain. Sure, Bitcoin is rising fast, but I am talking about COIN's fortunes specifically. The company is actually facing increasing competition from traditional brokerage houses, and now ETFs could steal a major chunk of assets under management. Earnings barely exist and are more the result of booming values for inventories held, as opposed to a highly profitable business model. As a consequence, COIN may be considered one of the most misunderstood overvalued ideas trading on Wall Street. Don't be shocked by another wild swing back to $50 in 2024 or 2025. That's the level consistent with a normalized valuation on a slow-growth brokerage business. Food for thought anyway, especially if you are chasing the stock, jumping into a crazy boom peak for pricing this late in the cycle. Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.
