Coinbase Analyst: 'Earnings Upside Potential Is Significant'

Coinbase Global Inc COIN is off to a strong start following last month’s IPO, and one analyst said Monday the stock is just getting started.

The Analyst: Oppenheimer analyst Owen Lau initiated coverage of Coinbase with an Outperform rating and $434 price target.

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The Thesis: In the initiation note, Lau said Coinbase is not just a cryptocurrency exchange, it’s a “platform for digital asset innovation.” He said the stock is well-positioned to capitalize as digital assets are becoming more mainstream over time given cryptocurrency addresses some problems in the current financial system.

Lau said Coinbase can leverage its trading business to support innovation and growth. He highlighted several reasons to like Coinbase as a core cryptocurrency investment, including its deep liquidity pool, valuable brand, focus on regulatory compliance and track record of security.

After opening at around $380 following its IPO in late April, Coinbase shares have pulled back to under $300, a move which Lau said is a buying opportunity for investors.

“Given the recent volatility of crypto prices, increasing institutional (i.e., trading and treasury management) acceptance of crypto and higher demand for retail crypto products, we believe the earnings upside potential is significant, and in our view, current valuation provides an attractive entry point,” he said.

Lau sees cryptocurrency as a long-term disruptor of the financial system, particularly when it comes to cross-border money transfers, payments infrastructure and tokenization. However, in the near-term, Lau said investors should be prepared for the potential of extreme volatility in the stock given its high correlation to Bitcoin BTC/USD prices.

Benzinga’s Take: At first glance, Coinbase trades at a seemingly extreme valuation of about 33.5 times sales and 77.7 times forward earnings. However, Coinbase’s business is at least profitable, which puts it in a different league than many other high-valued, high-growth tech IPOs in recent quarters.

COIN Price Action: Shares of Coinbase are up 2.75% at $301.48 at publication Tuesday afternoon.

(photo: Coinbase)