Cryptocurrency exchange Coinbase Global, Inc.’s (COIN - Get Rating) stock has declined 73.4% in price year-to-date and 74.5% over the past year to close the last trading session at $67.03. It is trading 81.8% below its 52-week high of $368.90, which it hit on November 9, 2021.

The stock has been hit hard since the beginning of the year due to the overall risk-off environment. The sell-off in the risky crypto market on concerns over the rising interest rates and insider trading charges against COIN have led to the stock’s continued decline this year. The most popular cryptocurrencies, bitcoin and Ethereum are down more than 55% year-to-date.

COIN’s Chief Executive Brian Armstrong expects the crypto winter to last about 12 to 18 months. The company laid off 18% of its workforce in June, citing rising costs.

The company is facing an investigation from the SEC. The SEC had announced insider trading charges on COIN’s former employee Ishan Wahi, accusing him of leaking insider information about listing at least 25 crypto assets for trading on the platform.

COIN is also under investigation for failing to disclose nine of the 25 cryptocurrencies leaked during the insider trading case as securities. The SEC alleges that these nine cryptocurrencies had met the security criteria. Still, COIN did not register them as securities even though they had all the hallmarks of a definition of security.

Moreover, the rise in cryptocurrency scams over the last year has drawn the attention of a House committee. The committee launched inquiries into COIN and four other crypto companies.

Here’s what could influence COIN’s performance in the upcoming months:

Disappointing Financials

COIN’s net revenue for the fiscal second quarter ended June 30, 2022, declined 63.7% year-over-year to $808.32 million. Its total operating expenses increased 36.9% year-over-year to $1.85 billion. The company’s net loss came in at $1.09 billion, compared to a net income of $1.61 billion in the year-ago period. Also, its loss per share came in at $4.98, compared to an EPS of $6.42 a year ago.

Unfavorable Analyst Estimates

Analysts expect COIN’s EPS for fiscal 2022 and 2023 to remain negative. Its revenue for fiscal 2022 is expected to decline 56.7% year-over-year to $3.39 billion.

Stretched Valuation

In terms of forward EV/Sales, COIN’s 3.84x is 32.8% higher than the 2.89x industry average. Likewise, its 4.45x forward P/S is 56.9% higher than the 2.83x industry average. And the stock’s 3.04x forward P/B is 160.4% higher than the 1.17x industry average.

Mixed Profitability

In terms of trailing-12-month Capex/Sales, COIN’s 0.11% is 93.3% lower than the 1.67% industry average. Likewise, its 0.10% trailing-12-month asset turnover ratio is 51.4% lower than the industry average of 0.20%.

The stock’s trailing-12-month gross profit margin and levered FCF margin came in at 100% and 39.14%, compared to the industry averages of 61.94% and 14.08%, respectively.

POWR Ratings Reflect Bleak Prospects

COIN has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. COIN has an F grade for Sentiment, in sync with unfavorable analyst estimates.

It has an F grade for Growth, consistent with its poor financials. Also, its stretched valuation justifies its F grade for Value.

COIN is ranked #154 out of 155 stocks in the F-rated Software – Application industry. Click here to access COIN’s Momentum, Stability, and Quality ratings.

Bottom Line

The Fed’s hawkish tone is expected to keep cryptocurrencies under pressure, affecting cryptocurrency exchanges like COIN. If the ongoing investigations against the company are true, it could seriously affect its business model while being subjected to various sanctions and hefty fines.

Given its ongoing investigations, poor financials, unfavorable analyst estimates, and stretched valuation, it could be wise to avoid the stock now.

How Does Coinbase Global, Inc. (COIN) Stack Up Against Its Peers?

COIN has an overall POWR Rating of F, equating to a Strong Sell. Therefore, one might want to consider investing in other Software – Application stocks with an A (Strong Buy) or B (Buy) rating, such as Commvault Systems, Inc. (CVLT - Get Rating), Rimini Street, Inc. (RMNI - Get Rating), and Open Text Corporation (OTEX - Get Rating).

COIN shares were trading at $67.49 per share on Wednesday morning, up $0.46 (+0.69%). Year-to-date, COIN has declined -73.26%, versus a -15.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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