It’s exciting, to watch Coinbase (NASDAQ:COIN) stock ride higher on Bitcoin’s (BTC-USD) coattails. This makes the stock susceptible to a retracement because of Coinbase’s high valuation. It’s fine to believe in Coinbase and Bitcoin. The last thing you need is to get trapped in an unfavorable trade.
Coinbase has revenue growth opportunities and room for business evolution. That’s great, but much of the company’s future growth has already been factored into Coinbase stock. Therefore, it’s fine to consider being a Coinbase investor, but not just at any price.
Coinbase Has ‘Material Growth Opportunities’
Please note, I’m certainly not saying that Coinbase is a bad company.
I actually agree with JMP Securities analysts, led by Devin Ryan, who wrote that Coinbase has “material growth opportunities in the exchange business as the market matures, with rising prices generally correlating with activity.”
That’s a double-edged sword, though. Sure, rising cryptocurrency prices will typically result in an increase in trading volumes, and that would benefit Coinbase’s bottom line. What if the Bitcoin price falls, though?
According to CoinDesk, the JMP Securities analysts observed that Coinbase’s “daily spot trading volume in the first quarter is averaging about $3.3 billion, which has more than doubled from the fourth quarter [of] last year.”
That’s impressive, but it occurred in conjunction with Bitcoin’s massively bullish price move.
It’s a risky proposition to assume that the cryptocurrency rally will continue at its blistering first-quarter 2024 pace. If that’s the main pillar of anyone’s bullish Coinbase stock thesis, it’s an uncertain basis for an investment.
COIN Stock Definitely Isn’t Cheap
On Feb. 26 before the market opened for trading, I recommended “cashing in on the crypto craze” with COIN stock. At the time, the stock traded at around $170.
That turned out to be a good time to invest in Coinbase. Recently, Coinbase stock hit $255 and traders may be tempted to go all in.
Instead, I recommend going all out. Look around, and you might notice signs of crypto mania and a likely short-term share-price top.
For instance, I recently heard about an NBA star considering taking part of his salary in cryptocurrency.
That’s not what you should want to hear if you’re a true contrarian. The idea is to buy COIN stock when the sentiment surrounding cryptocurrency isn’t sky-high.
Speaking of sky-high, Coinbase’s GAAP trailing 12-month price-to-earnings ratio is an eye-watering 686x.
Thus, it appears that Coinbase’s “material growth opportunities,” even if they’re considerable, have already been baked into the proverbial cake.
Be Prudent and Cash Out Your COIN Stock
Instead of cashing in on the crypto craze, now’s the time to cash out your Coinbase stock. It’s fine to envision “material growth opportunities” for Coinbase. However, you don’t need to chase the stock after a massive share-price rally has already taken place.
Coinbase’s valuation suggests that the shares are highly vulnerable to a drawdown, especially if Bitcoin falls. The most prudent strategy now is to take profits on COIN stock and wait for better opportunities.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
