The short squeezes triggered recently millennial investors on Reddit’s r/wallstreetbets (WSB) chatroom have heightened retail investors’ and Wall Street analysts’ interest in following the stocks discussed on the forum.
While WSB usually targets stocks that are fundamentally weak and possess significant short interest, some analysts believe some of the highly discussed stocks in the forum now possess sufficient fundamental strength to deliver significant returns.
Wall Street analysts are optimistic about the prospects of Reddit stocks Coinbase Global, Inc. (COIN) and Corsair Gaming, Inc. (CRSR). They believe these two stocks could prove to be long-term winners on the back of improving fundamentals because the prices of both have now returned to earth, providing a better entry point. Let’s dig into some details.
Coinbase Global, Inc. (COIN)
COIN is a leading provider of end-to-end financial infrastructure and technology for the cryptoeconomy. The company offers an easy-to-use platform for accessing and trading crypto assets, particularly Bitcoins. As of March 31, 2021, COIN had more than 56 million verified users in 100-plus countries, with $223 billion assets on the platform.
COIN was founded in 2012 but was listed as recently as April 14,2021. COIN listed its shares directly and they opened at $381. The stock quickly shot up to as high as $429.54, before retreating to below the debut price and hitting an approximately $310 low. However, COIN closed its first trading session at $328.28 well above its reference price of $250.
In the first-quarter, COIN expanded the breadth of its assets and added support for seven new assets to trade and 13 new assets to custody. In addition, , COIN acquired New York-based blockchain infrastructure platform-as-a-service (PaaS) company, Bison Trails, in the beginning of the year and integrated it with its Coinbase Cloud to allow users to send and store crypto, accept crypto payments, and build businesses with crypto-native infrastructure.
In the first quarter (ended March 31, 2021), COIN’s net revenue was $1.6 billion, surging a whopping 791.7% year-over-year. Its Retail Monthly Transacting Users (MTUs) grew to 6.1 million, more than doubling over the prior quarter. The operating margin came in at a healthy 54.8%. Its trading volume for the quarter was $335 billion, to which Bitcoin contributed 39% while Ethereum contributed 21% of the total volume. COIN reported EPS of $3.05.
COIN’s IPO could not have been timed better because prices of crypto assets at that time displayed unprecedented strength and have garnered interest from both retail and institutional investors in the cryptoeconomy over the past several months. However, the trend has reversed of late in the face of Tesla’s (TSLA) rejection of Bitcoin to purchase its vehicles, China’s outright ban, and the likelihood of stringent regulations on cryptos in the United States.
Adding to the concern, COIN’s platform experienced technical glitches amid the crypto plunge. As a result, shares of COIN declined nearly 6% intraday yesterday, to close the session at $224.80. In fact, the stock has declined 17% over the past five trading sessions and has slumped more than 30% since its debut. COIN is currently trading 47.7% below its $429.54 all-time high. Nevertheless, reddit users are still bullish on COIN and believe that the company will be able to effectively deal with rising competition from new market entrants to the cryptoeconomy every month. Of 12 Wall Street analysts rating the stock, eight have given it a Buy rating. The average price target for the stock is $404.75, indicating an 80% upside potential from the current price level.
Corsair Gaming, Inc. (CRSR)
CRSR is a leading global developer and manufacturer of high-performance gear and technology for gamers, content creators, and PC enthusiasts. The company offers gamer and creator peripherals and provides gaming components and systems. CRSR sells gear under its Elgato brand, custom-designed controllers for competitive gamers under the SCUF Gaming brand and builds custom gaming and workstations under its Origin PC brand. The company operates under two broad segments – Gamer and Creator Peripherals, and Gaming Components and Systems
On May 13, CRSR unveiled a new model in its flagship Virtuoso family of premium gaming headsets, the Virtuoso RGB Wireless XT that connects via hyper-fast slipstream wireless and Bluetooth for simultaneous dual-wireless connections. In April, the company launched its One a200 gaming PC, powered by the new AMD Ryzen 5000-series CPU, and it’s One i200, powered by the new 11th Gen Intel Core CPU. These systems are equipped with NVIDIA’s GeForce RTX 3080 and thus raise the bar for gaming and streaming-ready compact PCs. In addition, , CRSR launched three new products in its Champion Series range of peripherals last month that are built for and tested by top eSports professionals.
In the first quarter of 2021, CRSR generated $529.4 million in net revenues, increasing 71.6% year-over-year. Its gamer and creator peripherals segment’s net revenue was $175.9 million, surging 131.9% year-over-year, while its gaming components and systems segment’s net revenue was $353.5 million, rising 51.9% year-over-year. Notably, the company introduced 29 new products during the quarter and reported a 12.7% operating margin. Its adjusted EPS came in at $0.58, surging 420.4% compared to the year-ago value of $0.13.
CRSR has lost 12% so far this year to close yesterday’s trading session at $31.89. Despite supply constraints in key manufacturing components, the company is confident in meeting the robust demand this year. Notably, CRSR’s management has recently raised the financial outlook for its full-year 2021 and expects its blistering pace in new product introduction to continue throughout the year. All three Wall Street analysts rating the stock have given it a Buy rating. The average price target of $50.00 indicates an upside potential of 56.8% from the current price level.
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COIN shares were trading at $232.75 per share on Thursday morning, up $7.95 (+3.54%). Year-to-date, COIN has declined -29.10%, versus a 11.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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