Klaus Vedfelt
Circle Internet Group (NYSE:CRCL) shares have surged more than 8x their IPO price, and more than 3x their public opening price, in a matter of weeks.
The surge in stock price is the result of the passage of
Circle: How It Generates Money, Coinbase Relationship, And Why There's 50% Downside
Summary
- Circle's stock surge is driven by regulatory optimism and hype, but most investors misunderstand its business model and are unaware of Coinbase's revenue share.
- Circle's revenue is highly dependent on interest rates and reserve income, with over 50% of that income going to Coinbase and other future distributors.
- The current valuation, at 69x book and 1.8x its portion of reserves, assumes unrealistic growth, stable high interest rates, and no market share loss, all of which I find unlikely.
- I see at least 50% downside from current levels and rate Circle a 'Strong Sell'; investors should exit positions now.
I aim to invest in companies with perfect qualitative attributes, buy them at an attractive price based on fundamentals, and hold them forever. I hope to publish articles covering such companies approximately 3 times per week, with extensive quarterly follow-ups and constant updates.I manage a concentrated portfolio targeted at avoiding losers and maximizing exposure to big winners. This means that often I'll rate great companies at a 'Hold' because their growth opportunity is below my threshold, or their downside risk is too high.
Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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