According to an analyst on Tuesday, Circle Internet Group Inc.’s stock has been soaring for the past several weeks, which has caused the price to rise by almost 20% above fair value.
In Tuesday’s lunchtime trade, the stock (CRCL) fell 5.2% after rising 76.6% in the previous three days. It would only be the fourth drop since the stablecoin issuer went public on June 5 if the dip continues.
Since Congress and financial technology businesses have recently endorsed stablecoins, there has been a buying frenzy, and Circle’s shares was trading 706% higher than its initial public offering price of $31.
See also: Circle As a new Senate bill shows the government is treating stablecoins seriously, the Internet’s stock price is still rising.
Ed Engel, a Compass Point analyst, gave the stock a neutral rating because he thinks it has gone too far.
“We believe [Circle’s] valuation already reflects optimistic longer-term assumptions which makes it hard to justify a higher valuation,” Engel stated.
At $205, his price target is 18% less than the going rate. Additionally, it is $30 less than Seaport Global Securities’ $235 price forecast for Circle Internet, which was released earlier this week.
See also: Why Circle’s stock is still a good investment after a sixfold increase in value
Since the stock’s IPO was less than a month ago, other analysts have not yet provided their opinions.
On the plus side, Engel of Compass Point stated that as blockchains attract more transactions, Circle Internet’s USDC stablecoin, which is pegged in US dollars, might displace some traditional payment methods.
“CRCL provides pure-play exposure to this disruptive technology as the largest issuer of regulated stablecoins,” Engel stated.
However, because “mainstream businesses have much broader connectivity to end users,” Engel stated that Circle Internet also needs to distribute USDC more widely outside of the current cryptocurrency landscape.
He said that given Circle Internet’s short-term profits outlook, the danger of new competitors, and diminishing gross margins, investors seem to be undervaluing the company’s fundamentals.
After the U.S. Senate passed its version of the Genius Act last week, which aims to establish a stablecoin regulatory framework, Engel stated that he anticipates the House will approve a version of the law later this summer and President Trump would sign it by August.
As demonstrated by Shopify (SHOP), which immediately translates USDC into local currencies without the need for foreign currency or transaction fees, this will hasten the widespread adoption of blockchain payments.
“These integrations can reduce merchant discount rates by 100-200 basis points [1 to 2 percentage points] relative to debit and credit-card payments,” Engel stated.
“Complex blockchain software that’s difficult to replicate,” he continued, was created by Circle Internet.
This week, Circle Internet will join forces with Fiserv Inc. (FI) to offer FIUSD, its own stablecoin, for banks to utilize.
