Risks Still Elevated At These Prices As Coinbase Global, Inc. (NASDAQ:COIN) Shares Dive 26%

The Coinbase Global, Inc. (NASDAQ:COIN) share price has fared very poorly over the last month, falling by a substantial 26%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 2.4% over the last twelve months.

In spite of the heavy fall in price, you could still be forgiven for thinking Coinbase Global is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8.4x, considering almost half the companies in the United States' Capital Markets industry have P/S ratios below 3.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Coinbase Global

What Does Coinbase Global's P/S Mean For Shareholders?

Recent times have been advantageous for Coinbase Global as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Coinbase Global's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Coinbase Global?

Coinbase Global's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 115% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 20% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 7.8% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.4% per annum, which is not materially different.

In light of this, it's curious that Coinbase Global's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From Coinbase Global's P/S?

Coinbase Global's shares may have suffered, but its P/S remains high. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Analysts are forecasting Coinbase Global's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Coinbase Global you should know about.

If you're unsure about the strength of Coinbase Global's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.