Coinbase Global (NASDAQ:COIN) posted very impressive growth first quarter numbers and metrics on May 13, though lower than analysts’ estimates. If this trajectory is maintained, COIN stock is going to be much higher a year from now.
For example, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) spiked from $288 million in Q4 to $1.117 billion by March-end. That is a gain of 288% in the space of three months. Never mind that this was also a gain of 19 times over the $55 million in EBITDA a year ago. These numbers are astounding.
Moreover, the crypto trading company’s EBITDA margins also rose. Even though revenue rose 221% in Q1 over Q4, its EBITDA margins actually rose from 57.9% to 69.9%. That is also amazing. Usually, with higher growth rates, margins will fall or at least flatten out. Here they actually rose.
If this kind of growth continues, watch out. Coin stock is going to go through the roof eventually.
What Coinbase Is Worth
This is important since COIN stock is worth 29 times earnings based on analyst estimates of $8.92 in earnings per share (EPS) for 2021. That is a high multiple. But given its growth rate, this high multiple is probably understandable.
The issue seems to be whether analysts have high growth expectations for 2022. Right now the average estimate is for much lower EPS at $4.71. Analysts don’t seem to think the high level of crypto trading will continue. They think it will fall. And that puts the 2022 P/E ratio at 55 times earnings.
Coinbase provided an outlook that essentially said that the company expects its revenue and trading levels to meet or exceed the Q1 level. That means that, although the growth trajectory may not be as high, at least revenue and earnings might not fall.
This gives hope that the 2022 revenue and earnings can sustain today’s level. That implies that COIN stock is not too expensive.
The company made clear that revenue and earnings are “inherently unpredictable.” They will be volatile and “difficult to forecast.” But on the other hand, the company also said they are seeing a “rapid expansion of the cryptoeconomy.”
In my book, that means that analysts’ estimates for 2022 can’t be relied upon. Let’s assume that growth slows down to 25% to 33% year-over-year. That would bring EPS to $11.15 to $11.86.
At 30 times earnings, COIN stock would be worth $334.50 to $355.80, or $345.15. That is 33.6% above the present price of $258.37 as of May 14.
Where This Leaves Investors in COIN Stock
If you sense that I don’t like analysts’ recommendations and projections, you are correct. Get a load of this — despite lower projections for 2022 earnings, analysts also seem to have higher price targets.
So they think earnings will fall but, to hedge themselves, they have kept their high price targets. Something doesn’t make sense.
The fact is, Coinbase’s earnings will be hard to predict.
What we do know is that the whole world is paying more attention to crypto and digital assets. They are buying them and selling. That means more fees for the premier crypto exchange in the world, Coinbase Global.
Not all these analysts are as cynical as this. Piper Sandler started coverage of the company on May 14. The analyst, Richard Repetto, has an Outperform rating on COIN stock based on its “strong growth trajectory.” That’s what I am saying. Coinbase’s numbers are awesome. He also sees “positive industry trends supporting growth.”
Here is the bottom line. COIN stock is probably worth at least 33% higher than today at $345.15. This is actually lower than analysts’ target prices for the stock. Look for good things to happen this year with COIN stock.
On the date of publication, Mark R. Hake did not hold a long or short position in any security mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.