There are buys and then there are buys.
From our experience, the amount of money insiders invest can be a proxy for commitment and confidence. An insider that spends $1 million sends a much different signal than $1,000 or $10,000 or even $100,000.
No matter how much money an executive might have, a $1 million investment is a big deal. So, $76 million is a really big deal. That’s how much Coinbase Global, Inc. (COIN) Director and Co-founder Frederick Ernest Ehrsam, III poured into the cryptocurrency company. (1) No matter how wealthy one might be, $76 million is a whole lot of money.
Coinbase provides financial infrastructure and technology for the cryptoeconomy in the United States and internationally. The company offers the primary financial account in the cryptoeconomy for retailers; a marketplace with a pool of liquidity for transacting in crypto assets for institutions; and technology and services that enable ecosystem partners to build crypto-based applications and securely accept crypto assets as payment.
What makes the director’s big buy an even bigger deal is that all of Ehrsam’s previous trades were 100% sales, 21 uninterrupted for a little more than $492 million. Those sells were for $250 or more per share. Now, he’s bought three times starting at $70.77 and the most recent at $60.60. As of this keystroke, COIN trades at $75.32. Meanwhile, Wall Street has a one-year price target of $155.91. (2)
Coinbase Global is not expected to turn a profit for the foreseeable future. As such, investors need to put their focus on the topline for evaluation. Analysts forecast robust revenue growth for COIN in the year ahead. The consensus sales expectation for 2023 is $5.75 billion versus $4.54 billion this year. (3)
Surprisingly, COIN might offer investors some value. Usually, businesses associated with high flying industries like crypto have extended valuations. COIN trades at 2.03 times sales (P/S), which is its low point since its Initial Public Offering. (4) Meanwhile, its peer group has an average P/S ratio of a little more than 6.
If COIN hits the street’s 2023 revenue target, then the crypto company would need to trade at 7 times sales to hit Wall Street’s one-year price target of $155.91. Since going public in April 2021, Coinbase Global has traded at an average P/S ratio of 9.85, as low as 2.02 and as much as 24.71. Considering COIN’s limited history, it’s not out of the realm of possibilities for COIN to reach 7 times sales but could be difficult in the current market environment.
Another thing that could limit investors’ willingness to pay up for COIN is rising operating expenses. Management was doing a good job of cutting costs, reducing operating expenses from 1.08 times revenue in 2019 to 0.53 times the topline in 2021. However, the number spiked to 74% of sales in the trailing 12 months. It’s our feeling that COIN’s metric could expand as costs go down.
OVERALL: Co-founder Frederick Ernest Ehrsam, III spent a whole lot of money on Coinbase Global, Inc. (COIN) near its lowest level relative to sales since IPOing. Revenue is expected to rebound in 2023 but, in our opinion, rising operating costs could continue to hold COIN’s valuations below its peer group. Nonetheless, Coinbase’s risk-to-reward ratio appears to favor buyers.
COIN is appropriate for the most aggressive investors with at least a 18-24 month time horizon.
1 – https://www.secform4.com/insider-trading/1851442.htm
2 – https://finance.yahoo.com/quote/COIN?p=COIN
3 – https://finance.yahoo.com/quote/COIN/analysis?p=COIN3
4- https://finance.yahoo.com/quote/COIN/key-statistics?p=COIN
