The cryptocurrency has been hit hard since the beginning of the year due to the overall risk-off environment. The top two cryptocurrencies, Bitcoin and Ethereum, are down roughly 50% year-to-date. Cryptocurrency exchange Coinbase Global, Inc. (COIN) has lost 64.1% in price year-to-date and 64.8% over the past year to close the last trading session at $90.39.

COIN offers retailers the primary financial account in the crypto economy, 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-asset payments.

COIN has had a difficult year so far as it faces investigation from the SEC. On July 21, 2022, the SEC announced insider trading charges against COIN’s former employee Ishan Wahi, accusing him of leaking information to his brother Nikhil Wahi and friend Sameer Ramani that COIN would list at least 25 crypto assets for trading on its platform.

Just before COIN’s announcement, the former employee’s brother and a friend bought the tokens and sold them at a profit of roughly $1.50 million right after the official listing.

The SEC also alleges that nine out of the 25 cryptocurrencies involved in the insider trading case met the security criteria, but COIN did not register them as securities even though they had all the hallmarks of a definition of security.

Although COIN has denied any wrongdoing, the company could face severe consequences if the investigations find that COIN listed unregistered securities.

Many of COIN’s high-profile investors, such as Cathie Wood, have dumped the stock after allegations by the SEC surfaced.

Here’s what could influence the performance of COIN in the upcoming months:

Disappointing Financials

COIN’s net revenue for the fiscal second quarter ended June 30, 2022, declined 63.7% year-over-year to $808.32 million. Its total operating expenses increased 36.9% year-over-year to $1.85 billion.

The company’s net loss came in at $1.09 billion, compared to a net income of $1.61 billion in the year-ago period. Also, its loss per share came in at $4.98, compared to an EPS of $6.42 a year ago.

Unfavorable Analyst Estimates

Analysts expect COIN’s EPS for fiscal 2022 and 2023 to remain negative. Its revenue for fiscal 2022 is expected to decline 55.6% year-over-year to $3.48 billion.

Stretched Valuation

In terms of forward EV/S, COIN’s 5.25x is 82.3% higher than the 2.88x industry average. Likewise, its 5.85x forward P/S is 91.9% higher than the 3.05x industry average. And the stock’s 4.10x forward P/B is 229.9% higher than the 1.24x industry average.

Mixed Profitability

In terms of trailing-12-month Capex/Sales, COIN’s 0.11% is 93.3% lower than the 1.67% industry average. Likewise, its 0.10% trailing-12-month asset turnover ratio is 51.9% lower than the industry average of 0.20%.

The stock’s trailing-12-month gross profit margin and levered FCF margin came in at 100% and 39.14%, compared to the industry averages of 63.57% and 14%, respectively.

POWR Ratings Reflect Bleak Prospects

COIN has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. COIN has an F grade for Sentiment, in sync with unfavorable analyst estimates.

It has an F grade for Growth, consistent with its poor financials. Also, its stretched valuation justifies its F grade for Value.

COIN is ranked last out of 155 stocks in the F-rated Software - Application industry. Click here to access COIN’s Momentum, Stability, and Quality ratings.

Bottom Line

If the ongoing investigations by the SEC on COIN turn out to be accurate, then it could seriously hamper its business model, and the company could be subjected to large fines. Many large investors, including Cathie Wood’s ARK funds, have sold over a million shares of COIN, giving an indication that the smart money is not confident about the company’s prospects.

Given the ongoing investigations, poor financials, unfavorable analyst estimates, and stretched valuation, it could be wise to avoid the stock now.

How Does Coinbase Global, Inc. (COIN) Stack Up Against Its Peers?

COIN has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Software - Application stocks with an A (Strong Buy) or B (Buy) rating, such as Rimini Street, Inc. (RMNI), Commvault Systems, Inc. (CVLT), and Open Text Corporation (OTEX).

COIN shares were trading at $85.67 per share on Wednesday afternoon, down $4.72 (-5.22%). Year-to-date, COIN has declined -66.05%, versus a -9.73% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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