Compass Point Assigns Circle Internet Stock (CRCL) a Hold Rating as it’s Tough to ‘Justify a Higher Valuation’

Compass Point initiated coverage on Circle Internet (CRCL), an issuer of the USDC stablecoin, with a Hold (Neutral) rating and a price target of $205. While Compass Point analyst Ed Engel discussed several positives related to the crypto stock, he flagged some concerns, including its high valuation. Engel contends that Circle stock’s valuation already reflects bullish longer-term assumptions, making it difficult to “justify a higher valuation.”

CRCL stock has rallied massively from its IPO (initial public offering) price of $31 to $263.45 as of Monday’s closing, reflecting a jump of about 750%. Investor optimism around Circle Internet stock is mainly due to the passing of the proposed stablecoin legislation, the GENIUS Act, by the Senate.

Interestingly, crypto exchange Coinbase Global (COIN) receives 50% of the revenue generated from the interest earnings on Circle’s USDC reserves.

Compass Point’s Views on CRCL Stock

Compass Point believes that stablecoins can disrupt the financial system as blockchains “disintermediate” banks and payments networks. Engel noted that Circle Internet offers pure-play exposure to blockchain technology, given that it is the largest issuer of regulated stablecoins. He also highlighted that Circle gains from USDC’s leading technology and liquidity. The analyst pointed out CRCL’s dominant position in DeFi and regulated markets, supported by its leading software stack.

Despite these positives, Engel is sidelined on Circle Internet stock. The analyst argues that while the company’s existing distribution partners (Coinbase and Binance) are ideal for capturing demand, he believes that CRCL/USDC needs to partner with mainstream businesses, as their extensive reach can help grab market share in the payments space. Also, as nearly half of the USDC revenue is shared with Coinbase, there is less flexibility to add distribution partners on favorable terms. Moreover, mainstream businesses can roll out their own stablecoins by partnering with competing issuers (like Paxos) while holding up to 50% to 80% of interest income.   

Coming to valuation, Engel highlighted that CRCL stock is trading at over 100x EBITDA, reflecting that investors are valuing the stock on bullish long-term assumptions and not near-term earnings.

While the analyst expects CRCL stock to gain from near-term catalysts like favorable legislative developments, he cautioned that new entrants after the passing of stablecoin legislation will intensify competition and impact long-term market share expectations and margins.

Is CRCL Stock a Buy?

Circle Internet stock is gaining the attention of investors and Wall Street analysts. Recently, analyst Jeff Cantwell from Seaport Global initiated coverage of CRCL stock with a Buy rating and a price target of $235.

According to TipRanks’ Technical Analysis Tool, CRCL stock scores four Bullish indicators, leading to a Strong Buy consensus. However, it is worth noting that since the company recently went public, there is not enough data to fully analyze its technical patterns.