Coinbase Stock Tempting but isn’t without its Risks

Key Points

• Shares have been rallying hard for more than a year now, and the outlook remains strong.
• As Bitcoin has come roaring back, stocks like Coinbase are incredibly well-positioned to do well.
• However there are some concerns about its current valuation, so manage risk appropriately. 

A triple-digit percentage move upwards in little more than a month should tell you everything you need to know about how Wall Street is looking at Coinbase Inc NASDAQ: COIN these days. Having endured the worst that the crypto winter could throw at it, the crypto exchange has come roaring back with a vengeance. 

Since bottoming out at the start of last year, Coinbase shares have gained more than 700% and gone a long way to undoing the damage from the 90% sell-off they endured. If you’re one of the many investors who’ve missed out on the run to date, you’d be forgiven for thinking that most of the move has been missed, and it might be too late to get involved now. 

But fear not. Several stars are starting to align, supporting Coinbase’s rally in the months ahead. Let’s jump in and take a look. 

Broader Crypto Rally

The first is the ongoing bull run seen across the crypto space right now. Having been written off by so many in recent years after an eye-watering crash, Bitcoin is currently at its highest-ever level against the USD right now. As Bitcoin performs well, so do all the crypto-related stocks, including Coinbase, more than most. The recent launch of Bitcoin-related ETFs has done a lot to improve both the general investor sentiment toward investing in crypto and normalizing it as an asset that’s here for the long run. 

The previous bull runs seen in Bitcoin and its many peers were too easily dismissable as fringe assets that were benefiting from cheap money and a heavy risk-on sentiment among investors. But the fact that crypto has come back now, stronger than ever, when interest rates are elevated, and potential industry-altering crises like the FTX explosion have been weathered speaks volumes to its longevity. For stocks like Coinbase, this can only be a good thing for their long-term growth outlook. 

Coinbase’s blossoming growth potential is one that’s been spoken to recently by the team over at Goldman Sachs, who upgraded their rating on the stock last week. It was a move that was echoed by the KBW team, which did the same thing last month. Now, it’s worth noting that both teams previously had Coinbase rated a bearish Sell or equivalent, and both stopped short of upgrading it to a full Buy or equivalent, but still, they were two important upgrades, and both were in the right direction. 

Valuation Concerns

Coinbase remains a highly volatile stock, both in a good way and a wrong way. It’s easy to be tempted by the seemingly endless run of gains of recent months, but remember how quickly things have turned in the past. As the old saying goes, when Bitcoin sneezes, Coinbase catches a cold. And right now, there’s a case to be made that Coinbase is looking a little frothy. Indeed, a Relative Strength Index (RSI) reading of nearly 80 suggests the stock is heavily overbought right now and could be due for an imminent pullback. 

A price-to-earnings (PE) ratio of more than 700 doesn’t help things in this regard either. Still, investors thinking about getting into Coinbase know they’re not buying a well-established and mature organization, and many would say that’s what makes it so alluring. The risk is certainly higher here than in most other equities, but so, too, is the potential reward.

If you’re a believer in crypto’s ability to continue becoming more and more mainstream, and if you’re interested in having some kind of non-crypto-specific exposure to this, then Coinbase is undoubtedly an interesting option. Watch for shares to consolidate their recent gains above $250, but don’t be surprised if there’s some volatility in the near future.