COIN Stock Is Now Worth $261.58 or 18 times 2023 EV-to-EBITDA

Brian Armstrong, the Chairman, Chief Executive Officer, and Co-Founder of Coinbase Global (NASDAQ:COIN) is now firmly in control. On May 27, the company filed a prospectus update indicating that now he has voting control over 52.2% of the company’s shares. This is good for COIN stock, as it implies that the company will continue to make good long-term decisions for the company.

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That also implies that COIN stock will likely have good prospects going forward. I explained this in my article last month where I argued it was worth $249.53 per share. That price represents a potential gain of 10.9% over today’s price of $224.92 (as of Friday, July 23, 2021). I now believe that COIN stock is worth 16.3% more at $261.58. This article will show how I came up with this new price target.

I based my prior price target on the assumption the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) margin will fall to 50% by 2023. That is despite the fact that its margin as of Q1 2021 was 61.1%. It made $1.1 billion in adjusted EBITDA on $1.8 billion in revenue for the quarter ending March 31.

Revaluing Coinbase Stock

Coinbase expects to release its earnings for Q2 on August 10. If it continued to show this high a level of adjusted EBITDA in Q2, then maybe my estimate for 2023 adjusted EBITDA at 50% of sales is too low.

Even a small change will have a huge effect on the value of the company going forward. And don’t forget that the market will always look forward by 9 to 12 months in valuing a stock. So by the beginning of 2022, it will start to be valuing COIN stock on its potential 2023 adj. EBITDA as 2022 progresses.

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For example, let’s assume that by 2023 Coinbase produces 55% in adjusted EBITDA. Analysts now forecast sales will hit $6.75 billion, according to Seeking Alpha estimates. That is actually lower than the $8.94 billion in sales analysts have for this year. So this also provides a good margin of safety in our calculations.

So, assuming $6.75 billion in sales by the end of 2023, Coinbase should be able to make $3.7125 billion in adjusted EBITDA. We can now value the company based on its Enterprise Value (EV)-to-EBITDA multiple.

For example, Seeking Alpha reports that its trailing 12 months (TTM) EV-to-EBITDA ratio is over 26 times. So, to be conservative, if we value COIN stock on an 18 times EV/EBITDA ratio, its EV would be $67.05 billion. After adding in $1.439 billion in net cash, its equity market value should be $68.489 billion.

What To Do With COIN Stock

This represents an upside of 16.3% over its present market value of $58.907, according to Yahoo! Finance. (I have found that Yahoo! Finance has the most accurate market cap calculations. For example, the company recently raised some capital which not all market services have taken into account.) This implies, in turn, that COIN stock is worth $261.58, or 16.3% over today’s price of $224.92 (July 23).

Given this huge potential value increase in COIN stock, believe that Brian Armstrong will act in the company’s best interest. After all, that is essentially his own best interest, since it represents the vast majority of his net worth.

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Moreover, analysts have an even higher potential target price than my estimate. For example, TipRanks.com reports that 14 Wall Street sell-side analysts have written on the stock in the past 3 months. Their average price target is $352.58, or over 57% higher than today’s price.

I could have come up with a similar price target. For example, if I set the EV/EBITDA target multiple at 25 times, instead of 18 times, (i.e., closer to today’s multiple) the resulting EV would be $92.81 billion. After adding in $1.439 billion in net cash, the equity target value would be $94.25 billion. That would set its value at 60% higher than today’s market value, and imply a price target of $359.87. That is close to the Wall Street analysts’ target.

But I wanted to be conservative, and so used a 18 times EV/EBITDA multiple. Even with that lower multiple, COIN stock still has a 16% upside.

On the date of publication, Mark R. Hake held a long position in Bitcoin but no other security mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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