I’m going to avoid Coinbase stock until this happens

After several months of anticipation, Coinbase (NASDAQ: COIN) stock went public via a direct listing yesterday. The deal has been described as a watershed moment for the global cryptocurrency industry.

And as demand for the company’s shares has boomed, its valuation has jumped to more than $80bn. By comparison, the London Stock Exchange‘s value is only around $52bn, at the time of writing. 

However, I’m not in a rush to buy Coinbase stock. I’m going to wait and see how the company performs as we advance before building a position. 

Coinbase stock listing 

I tend to avoid buying companies at their IPO. The reason why is that launch prices are set by the sellers. The banks that take businesses public want to get the best deal possible. That means investors usually end up paying the price. The Deliveroo IPO is a great example. Since the opening day, the price has fallen by more than 30%. It’s clear the deal was overpriced. 

Even though Coinbase didn’t enter the market via the traditional IPO route, I think the same logic still applies. Indeed, the company’s shares debuted on the Nasdaq for $381, but later closed below $330. I think that shows the deal may also have been overpriced (at one point, the stock dropped as low as $118). 

Further, we only have minimal information on the business at this point. Every firm has to provide detailed financials before it goes public. However, these figures only give a snapshot of the company in recent years. By comparison, older public corporations like Prudential have many years of financial information available. By looking at these reports, I can get a good idea of how a business will perform through all market environments and how it makes money.

These two factors combined mean I’m going to avoid Coinbase stock until there’s more information available to investors. Then, it’ll be easier for me to place a value on the stock. The value of the shares may also drop after the initial listing. 

Left behind 

The big risk of adopting this approach is that I could be left behind. If shares in the company keep rising, I could miss out on some large profits. This is always going to be a risk with investing.

Some might say I’m too cautious as we already know a fair bit about the firm’s figures. Revenues hit $1.3bn, more than double that of 2019. Profits were $322m compared to a loss of more than $30m in 2019. These numbers appear incredibly impressive. 

However, I’d rather have all of the information in front of me before investing my hard-earned cash. Without this, I’d be hoping the stock goes up. That’s not investing, it’s gambling. 

As such, I’m planning to avoid Coinbase stock until the business has reported detailed financials for at least a year. In this time, I’ll be able to build a better picture of how the company makes money.