Coinbase Global (COIN) experienced a dramatic surge in its stock price following the release of its latest financial results, underscoring the company’s return to profitability and robust operating cash flow. The allure of high put premiums has piqued the interest of short sellers in the stock.
The meteoric rise of COIN stock by over 12% to $186.51 on February 16, 2024, was a clear indication of investors’ confidence in the crypto brokerage firm. After three years of striving, Coinbase achieved positive net income, reporting $273 million in Q4 and $95 million for the full year ending December 31, 2023. This remarkable feat was fueled by a staggering 45.3% surge in revenue to $905 million in Q4, compared to the previous quarter.
Notably, Coinbase’s adjusted operating cash flow in Q4 stood at a remarkable $292 million, translating to an operating cash flow margin of 32.3% for the quarter. This achievement holds significant implications for both the forthcoming quarters and the intrinsic value of COIN stock.
An Optimistic Outlook
The company’s announcement regarding transaction revenue, which constitutes over 50% of its total revenue excluding subscriptions, underscores the sustainability of the renewed interest in crypto trading. Such a positive outlook suggests that the company’s profitability is likely to be sustained, boding well for COIN stock.
Analysts are now projecting a robust upswing in revenue, estimating a rise to $4.015 billion in 2024, marking a 37% increase from the 2023 net revenue of $2.927 billion. Should Coinbase maintain its 32.3% operating cash flow margins, it could potentially generate an operating cash flow of nearly $1.3 billion, further enhancing the appeal of COIN stock.
Rising Target Price
Anticipations regarding the target price for COIN stock are inclined towards a significant uptick. Applying a 2.0% Free Cash Flow (FCF) yield metric to the projected $1.3 billion cash flow suggests a prospective market capitalization of $65 billion (i.e., $1.3 billion / 0.02 = $65 billion).
This would represent a sizable 43.5% hike from the preceding day’s market cap of $45.35 billion, setting the stage for a target stock price of $271 per share (i.e., 145.3 x $186.51). Therefore, despite the current upsurge, the stock possesses untapped potential for further growth.
This promising forecast spells good news for shareholders seeking additional income opportunities. Shorting out-of-the-money (OTM) puts in near-term expiration periods presents an avenue for augmenting their earnings.
Enhancing Income through Shorting OTM COIN Puts
Consider the March 8 expiry period, three weeks from now, where the $170 strike price, exceeding 10% out-of-the-money (OTM), commands a substantial price of $6.30 per put contract. This equates to a 3.70% yield for the short seller (i.e., $6.30/$170.00).
Consequently, the short seller stands to generate $630 after committing $17,000 in cash and/or margin. As long as the stock price remains above $170 by March 8, the investor can avoid purchasing COIN stock at $170 while retaining the accrued income.
This strategy offers an added layer of protection, with the breakeven price standing at $170-$6.30, or $163.70. Effectively, this provides a substantial 12.2% cushion below the present price, safeguarding the short-seller’s position.
In conclusion, COIN stock currently presents an enticing opportunity. Moreover, short put maneuvers offer shareholders a means to amplify their income while awaiting further appreciation in the stock’s value.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
