Cryptocurrencies have taken the world by storm over the past few years despite their extreme volatility and lack of regulation. However, retail investing in cryptocurrency is expected to decline in the coming months with China’s intensifying crackdown on digital currencies on concerns over massive energy consumption in the currency mining process and illegal activities, such as money laundering, that are perpetrated using them. In May, the U.S. Treasury Department said that it would require any cryptocurrency transfer worth $10,000 or more to be reported to the IRS.
Russia’s central bank said yesterday that stock exchanges in Russia shouldn’t list investment products related to cryptocurrency prices. And last month, the world’s largest cryptocurrency exchange, Binance, was banned from operating in the United Kingdom. Furthermore, the Federal Reserve’s indication that it will raise interest rates sooner than previously anticipated could lead to further pressure on such risky assets.
Thus, irrespective of one’s views on the prospects of cryptocurrencies, we think it’s better to stay away from the shares of fundamentally weak companies that benefit from cryptocurrency trading, for example The Charles Schwab Corporation (SCHW), Coinbase Global, Inc. (COIN), and SoFi Technologies, Inc. (SOFI). These stocks are currently trading at valuations that are not justified by their growth prospects.
Click here to check out our Cryptocurrency Industry Report for 2021
The Charles Schwab Corporation (SCHW)
SCHW is a popular financial services company that provides wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. In addition, the Westlake, Tex., company offers indirect exposure to cryptocurrencies, allowing several ways to access the market through “Over-the-counter” cryptocurrency coin trusts and Bitcoin futures.
Several law firms are investigating potential claims against SCHW for alleged violations of federal securities laws and potentially related corporate mismanagement. On July 2, 2021, SCHW said it would take a $200 million charge in the second quarter related to a U.S. Securities and Exchange Commission probe of its robo-adviser platform. The compliance inquiry is related to past disclosures around the firm’s Schwab Intelligent Portfolios product.
For the second quarter, ended June 30, 2021, SCHW’s total revenues declined 4% sequentially to $4.53 billion. The company’s trading revenue decreased 21.5% sequentially to $955 million. Its net income for the quarter came in at $1.27 billion, down 14.8% sequentially. And its non-GAAP EPS declined 16.7% sequentially to $0.70.
In terms of forward P/CF, SCHW’s 25.35x is 134.4% higher than the 10.82x industry average. The stock’s 2.54x forward P/B is 125.3% higher than the 1.13x industry average.
Analysts expect SCHW’s revenue and EPS to increase 4.3% and 10.2%, respectively, year-over-year to $18.97 billion and $3.47, in its fiscal year 2022. However, the stock has lost 7.2% over the past month to close yesterday’s trading session at $67.25.
SCHW’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a D grade for Value and Quality. Click here to see SCHW’s ratings for Growth, Momentum, Stability, and Sentiment also. SCHW is ranked #23 of 24 stocks in the Investment Brokerage industry.
Coinbase Global, Inc. (COIN)
COIN provides financial infrastructure and technology for the crypto economy. The San Francisco company offers a primary financial account for the crypto economy, a platform to invest, store, spend, earn, and use crypto assets, and an online marketplace for hedge funds, money managers, and corporations.
The Schall Law Firm, a national shareholder rights litigation firm, announced in May 2021 that it was investigating claims on behalf of investors on COIN for alleged violations of securities laws. The investigation focuses on whether the company issued false and/or misleading statements and/or failed to disclose information pertinent to investors.
COIN’s revenue increased 791.7% year-over-year to $1.98 billion for its fiscal first quarter, ended March 31, 2021. However, its operating expenses grew 435.6% year-over-year to $813.40 million, while its total liabilities increased 69.6% sequentially to $7.34 billion.
In terms of forward P/B, COIN’s 19.63x is 1,638.3% higher than the 1.13x industry average. The stock’s 7.40x forward P/S is 136.7% higher than the 3.13x industry average.
For its fiscal year 2022, analysts expect COIN’s EPS and revenue to decrease 40.3% and 9.9%, respectively, year-over-year to $4.88 and $5.67 billion. Over the past three months, the stock has lost 21.3% to close yesterday’s trading session at $226.08.
COIN’s poor prospects are apparent in its POWR Ratings also. It has an F grade for Stability, and a D grade for Value and Sentiment.
Click here to see the additional POWR ratings for COIN (Momentum, Growth, and Quality). It is ranked #68 of 133 stocks in the Software - Application industry.
Click here to check out our Software Industry Report for 2021
SoFi Technologies, Inc. (SOFI)
SOFI in San Francisco is a digital financial services company that operates through three segments: Lending, Financial Services, and Technology Platform. The company allows users to trade cryptocurrency in specific regions, including California and Texas, via SoFi Invest.
SOFI made its stock market debut on June 1, 2021, going public by merging with Social Capital Hedosophia Corp V, a blank-check company run by venture capital investor Chamath Palihapitiya. However, several regulatory bodies have been increasing scrutiny on SPACs, which could impact SOFI.
The company’s financial services segment’s loss came in at $35.52 million for its fiscal first quarter ended March 31, 2021, representing a 31.6% year-over-year rise. SOFI’s total loan origination for the quarter was $2.54 billion, representing a 24.3% year-over-year decrease. Its net loss increased 66.9% year-over-year to $177.56 million. The company’s interest expense increased 360.3% year-over-year to $5 million.
In terms of forward P/S, SOFI’s 12.19x is 290% higher than the 3.13x industry average.
Analysts expect SOFI’s revenue to increase 51.8% year-over-year to $1.49 billion in its fiscal year 2022. However, the company’s EPS is expected to remain negative in its fiscal year 2021 and 2022. The stock has lost 24.3% over the past month to close yesterday’s trading session at $16.05.
SOFI’s weak fundamentals are reflected in its POWR Ratings. It has a D grade for Value, Stability, and Sentiment.
Click here to see SOFI’s ratings for Growth, Momentum, and Quality also. SOFI is ranked #80 of 102 stocks in the Financial Services (Enterprise) industry.
Click here to check out our Cryptocurrency Industry Report for 2021
SCHW shares were trading at $67.60 per share on Friday afternoon, up $0.35 (+0.52%). Year-to-date, SCHW has gained 28.20%, versus a 18.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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