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Coinbase Global Inc Cl A(COIN-Q)

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Coinbase Stock Looks Attractive to Short Put Investors Based on Its Profitability and Positive Cash Flow

Barchart - Fri Feb 16, 1:09PM CST

Coinbase Global (COIN) stock surged based on its latest results for the crypto brokerage firm. It showed the company produced positive net income and operating cash flow. Put premiums are high, making them attractive to short sellers.

COIN stock is up over 12% to $186.51 on Friday, Feb. 16, 2024. The company returned to profitability for the first time in three years including $273 million in Q4 and $95 million for the full year ending Dec. 31, 2023. This was a direct result of surging revenue, which was up 45.3% in Q4 to $905 million from the prior quarter.

Coinbase produced an adj. operating cash flow of $292 million in Q4. That represented an operating cash flow margin of 32.3% for the quarter. That has huge implications for the upcoming quarters and the value of COIN stock.

Outlook Improved

The company said its transaction revenue, which is over 50% of total revenue apart from subscriptions, is on par with and exceeding where it was with Q4 revenue. That implies that the renewed interest in crypto trading could be sustainable, at least for the near term.

This implies that the company could remain profitable. That has good implications for COIN stock.

For example, analysts now project that revenue could rise to $4.015 billion in 2024. That is up 37% from 2023 net revenue of $2.927. Moreover, if its 32.3% operating cash flow margins hold up, Coinbase could produce an operating cash flow of almost $1.3 billion (i.e., 32.3% x $4,015 million = $1,296 million).

Target Price

The target price for COIN stock could be substantially higher. For example, using a 2.0% FCF yield metric with $1.3 billion in cash flow implies a market cap of $65 billion (i.e., $1.3b/0.02 = $65b).

That is 43.5% higher than yesterday's market cap of $45.35 billion. In other words, this puts the stock price target at $271 per share (i.e., 145.3 x $186.51). So, despite today's rise, the stock could still have further to go.

That is also good news for shareholders who may want to make extra income. They can do this by shorting out-of-the-money (OTM) puts in near-term expiration periods.

Shorting OTM COIN Puts for Income

For example, the March 8 expiry period, three weeks from now, shows that the $170 strike price, which is over 10% out-of-the-money (OTM), trades at a high price. They are at $6.30 per put contract, which represents a 3.70% yield to the short seller of these puts (i.e., $6.30/$170.00).

COIN puts expiring March 8 - Barchart - As of Feb. 16, 2024

That means that the short seller can make $630 after securing $17,000 in cash and/or margin. As long as the stock price does not fall over 10% to $170 by March 8, the investor will not have to buy COIN stock at $170. But they still get to keep the income generated.

That provides an extra protection. For example, the breakeven price is $170-$6.30, or $163.70. That means that the breakeven price is 12.2% below today's price. That provides a large degree of protection to the short-seller.

The bottom line is that COIN stock looks attractive here. In addition, short put plays can help shareholders make extra income while they wait for the stock to rise.

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On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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