Circle Internet Group (CRCL) has quickly become the third most actively traded U.S. stock, an unusual feat for a company with a $60 billion market cap and an IPO less than a month old. In the last trading session, the stock notched up over 1 million shares in trading volume compared to an average daily volume of ~45k. In recent days, the stock rose from ~$210 to almost $300 per share before paring gains and now trading around $222.
While such intense volume draws attention, it also raises questions about valuation, especially compared to giants like Tesla (TSLA), which tops the list with a market cap of over $1 trillion. Given the typical post-IPO volatility and signs of speculative enthusiasm, I’m taking a cautious stance and assigning Circle a Hold rating for the time being, with the sneaking suspicion that what goes up must come down.
The company’s core business is as the principal issuer of USDC, the second-largest stablecoin globally, with approximately $61 billion in circulation. Circle operates cross-chain on Ethereum, Solana, and other blockchains, making it a critical element of the financial infrastructure of the burgeoning crypto ecosystem. Its revenue is primarily derived from interest on its USDC reserve, which is highly profitable at scale; currently, this accounts for approximately 99% of its revenue.
With the company trading at over 20x its book value, compared to about three times for the sector median, it’s logical to be cautious about buying a position in Circle. In contrast, Coinbase (COIN) has a price-to-book ratio of just 7.5, with year-over-year revenue growth of about 75% compared to about 15% for Circle.
One thing is certain: if you buy Circle stock now, you’re paying a premium, and that’s always a significant setback in achieving world-class returns. Circle currently has positive earnings per share, which lends it a degree of operational credibility, and I expect these earnings to grow rapidly in the coming years. Still, the stock is currently trading at a stark 220x forward earnings.
However, from a macro perspective, the tailwinds for strong returns are substantial. The stablecoin market is expected to grow from approximately $260 billion to $1-2 trillion or more over the long term. There are also specific near-term catalysts that can support Circle in maintaining momentum to capitalize on this expanding market opportunity. In some sense, this substantiates the current premium valuation.
