Bitcoin, the largest cryptocurrency, has been trading in a tight range due to the volatile economic backdrop. Moreover, with a disappointing global growth forecast, the crypto market might be bracing for more volatility. Amid this backdrop, we think crypto stocks Block, Inc. (SQ), Silvergate Capital (SI), and MicroStrategy (MSTR) might be best avoided. Continue reading….
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The ongoing war in Ukraine and the 40-year high inflation are affecting cryptocurrency prices. Moreover, the leading cryptocurrency, Bitcoin, dropped below $23,000 recently after the second-quarter GDP report. Bitcoin hasn’t been above $50,000 since late December 2021. The cryptocurrency has been trading between a tight range of $22,000-$25,000.
Bitcoin again fell on Thursday on U.S. labor market numbers which indicated a weakening market. On top of it, adding to the volatility in the crypto market is the IMF’s forecast that the economic growth will slow from 6.1% last year to 3.2% this year.
The broader economy might impact the performance of the risky asset in the near term. Hence, we think the crypto stocks Block, Inc. (SQ), Silvergate Capital Corporation (SI), and MicroStrategy Incorporated (MSTR) might be best avoided now.
Block, Inc. (SQ)
SQ provides tools that enable sellers to accept card payments and provides reporting and analytics and next-day settlement. The company’s hardware product offerings include Magstripe reader and Contactless and chip reader, and it offers software products, including Square Point of Sale, Square Appointments, and Square for Retail.
For the fiscal second quarter ended June 30, SQ’s total net revenue decreased 5.9% year-over-year to $4.40 billion. Adjusted net income declined 56.8% from the prior-year quarter to $110.74 million. Adjusted net income per share came in at $0.18, down 63.3% from the same period the prior year.
Analysts expect SQ’s revenue for the fiscal year 2022 to increase marginally year-over-year to $17.76 billion.
The stock has declined 66.3% over the past year and 44.5% year-to-date to close its last trading session at $89.70.
SQ’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SQ has a Stability grade of F and a Growth, Value, and Sentiment grade of D. In the 109-stock Financial Services (Enterprise) industry, it is ranked #103. The industry is rated D. Click here to see the additional POWR Ratings for SQ (Momentum and Quality).
Silvergate Capital Corporation (SI)
SI is the bank holding company of Silvergate Bank that provides banking products and services to business and individual clients in the United States. The company accepts deposit products and offers loan products.
SI’s total interest expense increased 262.7% year-over-year to $1.04 million in the fiscal second quarter ended June 30. Total non-interest expenses rose 42% from the prior-year period to $30.55 million.
The stock is down 30.7% year-to-date and 8.1% over the past six months to close its last trading session at $102.68.
SI’s overall D grade translates to Sell in our POWR Ratings system. The stock has an F grade for Value and Stability and a D for Quality.
SI is ranked #41 out of the 42 Pacific Regional Banks industry stocks. To see the additional POWR Ratings for Growth, Momentum, and Sentiment for SI, click here.
MicroStrategy Incorporated (MSTR)
MSTR is an enterprise analytics software and services provider. The company’s offerings include MicroStrategy, an enterprise platform that supplies a modern analytics experience. It also offers MicroStrategy Support that helps customers and improves the overall experience.
For the fiscal second quarter ended June 30, MSTR’s total revenues decreased 2.6% year-over-year to $122.07 million. Non-GAAP net loss and non-GAAP loss per share came in at $1.05 billion and $92.81, up 262.8% and 212.9% from the prior-year period.
The consensus EPS estimate of $0.49 for the quarter ending September 2022 indicates a 73.7% year-over-year decrease. Likewise, the consensus revenue estimate for the same quarter of $127.58 million reflects a marginal decline from the prior-year period.
MSTR’s stock has declined 53.9% over the past year and 43.2% year-to-date to close its last trading session at $309.31.
It’s no surprise that MSTR has an overall F rating, equating to a Strong Sell in our proprietary rating system. The stock has a Sentiment and Quality grade of F and a Value, Momentum, and Stability grade of D. In the F-rated, 154-stock Software – Application industry, it is ranked last.
In addition to the POWR Rating grades we’ve stated above, one can see MSTR’s rating for Growth here.
SQ shares were trading at $91.01 per share on Friday morning, up $1.31 (+1.46%). Year-to-date, SQ has declined -43.65%, versus a -12.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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