Coinbase Global is currently trading at $33.54 per share and has a Graham number of $73.91, which implies that it is -54.6% below its fair value. We calculate the Graham number as follows:
√(22.5 * earnings per share * book value per share) = √(22.5 * 9.78 * 24.829) = 73.91
The Graham number is one of seven factors that Graham enumerates in Chapter 14 of The Intelligent Investor for determining whether a stock offers a margin of safety. Rather than use the Graham number by itself, its best to consider it alongside the following:
Sales Revenue Should Be No Less Than $100 million.
For Coinbase Global, average sales revenue over the last few years has been $3,216,886,666, so according to the analysis the stock has impressive sales revenue.
Current Assets Should Be at Least Twice Current Liabilities.
We calculate Coinbase Global's current ratio by dividing its total current assets of $18,373,863,000.00 by its total current liabilities of $11,419,035,000. Current assets refer to company assets that can be transferred into cash within one year, such as accounts receivable, inventory, and liquid financial instruments. Current liabilities, on the other hand, refer to those that will come due within one year. Coinbase Global’s current assets outweigh its current liabilities by a factor of 1.6 only.
The Company’s Long-term Debt Should Not Exceed its Net Current Assets
This means that its ratio of debt to net current assets should be 1 or less. Since Coinbase Global’s debt ratio is 0.5, the company has healthy debt levels. We calculate Coinbase Global’s debt to net current assets ratio by dividing its total long term of debt of $3,384,795,000 by its current assets minus total current liabilities.
The Stock Should Have a Positive Level of Retained Earnings Over Several Years.
Coinbase Global had positive retained earnings from 2020 to 2021, during which time they averaged $2,538,364,000. Retained earnings are the are the sum of the current and previous reporting periods' net asset amounts, minus all divend payments. It's a similar metric to free cash flow, with the difference that retained earnings are accounted for on an accrual basis.
There Should Be a Record of Uninterrupted Dividend Payments Over the Last 20 Years.
COIN has never offered a dividend.
The Company Should Have a Minimum Increase of at Least One-third in Eps Over the Past 10 Years.
We only have 3 years of Eps on Coinbase Global, so it fails the Graham test on this basis alone, but we still think it's worthwhile to look at its growth over the available period. In 2019, the earnings per share was $-0.50, while in 2021, it was $14.50. This give us a 3000.0% growth rate during this period, which will satisfy Ben Graham's requirement if it continues on this trend.
Based on the above analysis, we can conclude that Coinbase Global meets most of Benjamin Graham's criteria for an undervalued stock because it is trading far below its fair value and has:
- impressive sales revenue
- an average current ratio
- healthy debt levels
- positive retained earnings from 2020 to 2021
- no dividend record
- Eps growth in excess of Graham's requirements
