After an 80% drop, is Coinbase stock a steal or a value trap?

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Coinbase Action Cryptocurrency Exchange (NASDAQ
NDAQ
:COIN) is down nearly 80% since the start of 2022 and remains down nearly 85% from all-time highs seen in November 2021, trading at levels around $75 per share. The crypto exchange underperformed the broader S&P 500, which is down around 22%. With the Fed raising rates at a faster pace than expected to combat soaring inflation, investors are moving away from risky and non-performing assets such as cryptocurrency. For perspective, the flagship cryptocurrency Bitcoin
BTC
is now down 74% from its November high, trading at around $19,000 on Sunday. Falling cryptocurrency prices typically result in lower trading volumes and impact active user counts for exchanges such as Coinbase. Growth stocks, in general, also took a hit, amid worries about a possible recession in the United States – year on year to 9.2 million, with total trading volume down 45% to 309 billion of dollars. Things are likely to get worse in the second quarter as the full impact of the cryptocurrency decline is felt.

So, is it time to buy Coinbase shares after this big sell-off? While it’s difficult to plan an entry into the stock amid market volatility, there are some factors worth considering for potential investors. It is clear that things will remain difficult for the company in the short to medium term, as crypto prices may remain depressed thanks to Fed monetary tightening, which will almost certainly further impact the activity of the platform. -form of the company. That said, Coinbase also has ample liquidity to ride out a bear cycle, with its cash and cash equivalents at the end of Q1 2022 standing at $6.1 billion. It is also very likely that the downward trend in crypto prices will eventually reverse. Bitcoin is considered one of the most innovative technologies of our time, and as an asset it has shown resilience in the past, bouncing back stronger from big selloffs. While it’s hard to say exactly how long a recovery will take, Coinbase has previously reported that the crypto cycle typically lasts two to four years. Coinbase should be a big beneficiary as things eventually look up, given that it is the market leader in cryptocurrencies. Coinbase has also shown the potential for extraordinary profits during good times. In 2021, the company’s total profits were $3.6 billion on revenue of approximately $7.4 billion. These factors could make the stock’s risk-reward positioning attractive relative to historical levels.

We value Coinbase stock at $150 per share, which is significantly higher than the current market price of $55 per share. See our analysis on Coinbase Valuation: Expensive or cheap? for more details on Coinbase’s valuation. See also our analysis on Coinbase revenue: How does COIN make money? for more details on the company’s main sources of revenue and their evolution.

Stock prices have fallen precipitously across all sectors over the past few months and we are now in a bear market for the first time since March 2020, when the Covid-19 outbreak triggered a stock market crash. We capture key Dow Jones trends during and after major stock market crashes in our interactive dashboard analysis,’Comparison of stock market crashes.’

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