In early June, Circle Internet Group (CRCL +3.40%) went public. It represents a new and exciting way to invest in crypto, with Circle having its own stablecoin, USDC (pegged to the U.S. dollar). It's one of the most popular stablecoins in circulation. And the money people pay for the coin enables Circle to then use those deposits to generate interest income. Not only is it a growth play in crypto, but its business model is also fairly safe -- Circle posted a profit last year.
As a result, investors have been feverishly buying shares of Circle. And although the stock has given back some gains, its valuation is still incredibly high right now. Has this hot new crypto stock already peaked, or can it still make for a good addition to your portfolio today?
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A volatile start since going public
Circle Internet Group stock started hot out of the gate, going from an initial public offering (IPO) price of $31 last month to an intraday high of nearly $300 on June 23. As investors cashed out those early gains, the stock would end up declining and finishing last week at just under $189.
During this period, there have also been significant fluctuations in its trading volumes.
CRCL Volume data by YCharts
Investors have been eager to jump on the newest crypto stock given the hopes that more favorable regulation with respect to stablecoins will make Circle Internet Group one of the best ways to invest in this opportunity. Circle's stablecoin, USDC, is the most popular one in circulation after Tether.
Does the hype line up with its value and growth prospects?
While there is excitement in Circle, there are a couple of problems with investing in the stock right now.
The first is its soaring valuation, which has pushed it to a market cap of over $50 billion -- that's around 30 times the $1.7 billion it generated in revenue last year. And while analysts have been bullish on the new issue, the average consensus price target is just under $190, implying that the stock may already have run out of room to rise higher. The caveat, however, is that analyst price targets can change and are not set in stone. But this highlights just how rapidly the stock has taken off since going public last month.
Another problem I see with the stock is that its growth prospects aren't necessarily all that enticing for it to be valued as highly as it is. That's because while there are compelling growth opportunities in crypto, Circle's growth depends on how popular the USDC stablecoin is. The company's reserve revenue is a function of how much USDC is in circulation and how much interest it can earn on those deposits. While the business model centers around a low-risk strategy of earning interest income, it arguably doesn't warrant such a significant premium given its debatable growth prospects.
NYSE: CRCL
Key Data Points
Investors should think carefully about Circle Internet Group
Circle's stock has been red hot in its early days, but with potentially a lot more competition from other stablecoins in the future, I'm not convinced that the company can generate the high level of growth that's needed to justify its steep price tag. While it can be an enticing way to invest into crypto, it's by no means the only option, and there will be others out there as more crypto companies go public and more stablecoins become available.
This has turned into a highly speculative stock and unless you have a high risk tolerance, you may want to consider taking a wait-and-see approach with Circle Internet Group for now. It may not have peaked, but it's definitely a risky buy.
