Is An Extended Rebound Ahead For Coinbase Or Strategy Stock?
The article discusses the potential rebound for Coinbase and Strategy stocks amid hopes of a Fed rate cut. Despite recent dips, Bitcoin's price is rebounding, impacting crypto-related stocks. Coinbase is 38% below its 52-week high, while Strategy is 60% below its peak. Both companies face risks tied to Bitcoin's volatility and macroeconomic pressures. Coinbase's sales are expected to grow, but profitability may decline due to expansion costs. Strategy's EPS estimates have improved, but concerns over debt remain. Both stocks hold a Zacks Rank #3 (Hold), suggesting cautious optimism.
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Hopes of another rate cut at the Fed’s policy meeting next week have given rejuvenation to stocks and the crypto market. Despite a dip on Thursday, the price of Bitcoin has started to rebound after recently hitting multi-month lows of under $85,000 and pulling down some of the most sought-after crypto-related stocks, such as Coinbase (COIN - Free Report) and Strategy (MSTR - Free Report).
Most appealing to investors, especially to those who may want to build positions in Coinbase or Strategy stock for the first time, is that COIN is 38% from its 52-week high of $444, with MSTR trading nearly 60% from a one-year peak of $457.
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Risk Factors to Consider
Broader risk factors tied to Bitcoin tend to vary, but as of late have centered around macroeconomic pressures like traditional currencies face, along with leveraged liquidations, and weak investor sentiment.
Before the latest correction, Bitcoin had ballooned to over $120,000 after going on a bullish run following its most recent halving cycle in 2024, where the rate at which new Bitcoin is produced is cut every four years by 50% and leads to a lucrative supply and demand scenario. The bull run has brought about bubble fears, with it noteworthy that the price of Bitcoin was at around $63,000 before the halving last year.
While Coinbase has more stable operations, ongoing weakness in cryptocurrencies can eventually lead to lower trading volumes, on top of increased competition from other trading platforms such as Robinhood Markets (HOOD - Free Report) .
As a Bitcoin treasurer that now holds over $550,000 BTC, Strategy’s massive Bitcoin holdings have surged in value, and new accounting rules allow the company to record unrealized gains on its income statement, but profitability may be sporadic despite its massive earnings potential. It’s also noteworthy that there have been concerns over Strategy’s balance sheet holding over $8 billion in debt tied to Bitcoin purchases against just $54 millon in cash.
Tracking Coinbase & Strategy’s Outlook
Optimistically, Coinbase’s outlook has remained intact as annual sales are still expected to expand by high double digits in fiscal 2025 and FY26, with projections edging north of $8 billion. On the bottom line, FY25 earnings estimates have actually trended higher in the last 60 days and are now expected to increase 5% to $8.01 per share.
However, a decline in Coinbase’s profitability is expected next year in correlation with higher expansion costs, with FY26 EPS projected at $5.87, although this is still up from estimates of $5.83 two months ago.
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Pivoting to Strategy, the U.S. accounting standard update has led to the company potentially delivering eye-catching FY25 EPS of $78.04 compared to expectations that called for an adjusted loss of $15.73 a share 60 days ago.
Furthermore, in the last two months, FY26 EPS estimates have ballooned to $51.60 from expectations of -$0.40. Theoretically, Strategy’s net income is slated to be in the billions for the foreseeable future, but of course, this depends on Bitcoin’s price trajectory. Considering such, the market has been unmoved amid recent cryptocurrency volatility as Strategy’s annual sales remain under $500 million, with modest single-digit growth expected in FY25 and FY26.
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Bottom Line
Normally, such a compelling uptick in EPS revisions would very well trigger a buy rating regarding Strategy’s stock, but this has to be taken with a grain of salt at the moment, along with its cheap forward earnings multiple of 2X. At 34X forward earnings, Coinbase’s valuation has become more reasonable compared to the high premium investors were paying in the past, but the trend of EPS revisions for COIN is not captivating enough to suggest an extended rebound is in the cards yet.
For now, Coinbase and Strategy stock land a Zacks Rank #3 (Hold) as there may still be more lucrative buying opportunities ahead.
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