Down 42%, Is It Time to Buy This Growth Stock on the Dip?

The top performing digital assets are certainly getting a lot of attention from investors. For those not ready to fully jump in, owning a business like Coinbase (COIN -2.61%) This might be an idea worth considering.

But even this leading cryptocurrency company has taken investors on a volatile ride. Shares of the company have soared 391% in 2023 before rising 19% year-to-date (as of August 26). However, they are trading 42% below their all-time high price from the 2021 bull market.

Is it time to buy the dip in this crypto? growth stock?

Riding the momentum of the cryptocurrency market

After the crypto winter Coinbase’s growth, which began in 2022, has been notable. Net revenue increased by 50% in the fourth quarter of 2023 thanks to rising prices in the digital asset market. That momentum has continued this year, although transaction fees declined significantly between the first and second quarters.

Coinbase is a leading broker and exchange serving the cryptocurrency industry. Naturally, when investors and traders are bullish, it drives activity on the platform. The result is a financial windfall for Coinbase. But the reverse is also true, as a bear market can create a powerful headwind.

The management team, led by founder and CEO Brian Armstrong, is fully aware of this disadvantage, which is why they are working to create a more predictable business model that relies less on transaction volume and more on recurring revenue.

Coinbase sees some strength in areas such as stable coins, blockchain rewardsand custody fees. Known as subscriptions and services, this segment grew its sales 79% year over year in the second quarter (ended June 30). It accounted for 43% of total revenue, up dramatically from a 5% share just three years ago. Coinbase’s main goal is to usher in a new era in the industry, characterized by a greater utility of crypto and blockchain, as opposed to financial speculation.

It’s not an easy stock to own.

At their low point in late 2022, shares were trading at a price/sales ratio The price-to-earnings (P/E) ratio is below 1.5. But after the stock’s comeback, the valuation is less compelling. It now has a P/E multiple of nearly 11.9. That’s very expensive, in my opinion, and it shows the market’s extreme enthusiasm for the company.

This outlook doesn’t change even when you realize that Coinbase more than doubled its revenue between the first six months of 2024 and the same period last year. operating result Net income was $1.1 billion, compared with a loss of $197 million in the first two quarters of 2024. That’s an impressive turnaround, but things can go south in an instant if market conditions deteriorate, which history likely will.

Add to that these wildly unpredictable financial results and Coinbase’s high valuation, and it becomes extremely difficult for any investor to buy and hold the stock for the long term. But I can still see why the company would be on your radar.

There may be investors who want to gain exposure to the cryptocurrency industry without having to choose and own specific digital assets, such as Bitcoin Or Ethereumfor example, directly. Perhaps they consider this venture too risky.

This is where Coinbase seems compelling. It offers exposure to a company, via stock, that serves the entire crypto industry. And to further clarify the connection, Coinbase’s ultimate success depends on the success of the market. If in five or ten years, crypto and blockchain technology become a bigger part of our daily lives, I would be shocked if Coinbase didn’t benefit from that as well.

Investors who are bullish on the sector, have a high risk tolerance and a longer time horizon, are the only ones who should buy this stock.