P/E ratio analysis for Ethereum
It is a little bit uncommon to apply a Price Earnings Ratio analysis to a cryptocurrency, but nevertheless it holds some very interesting insights and perspective.
We have three aspects about Ethereum which I want to put in focus first of all before deep-diving into the P/E ratio analysis.
First, we have a slightly deflationary supply, second, we can get 5% return for staking it, and third, and this is very important, Ethereum is at the forefront, is an innovation-driver in one of the hottest industries out there with Web3 and the crypto market more broadly.
We take a little bit of an unusual approach now and transform the fundamentals of Ethereum now into a stock price earning ratio analysis, and especially the third point is important to remember for this. It is also a bit unusual compared to what is our core at hoc-trade. We enable active traders to find and track their behavioral patterns through our AI-enabled analytics platform. The AI learns from millions of data points, learns patterns and then applies these patterns to the behavior of the trader. It enables traders to see their trading performance from completely new dimensions and enables them to react through our near real-time alerts. But, also for daytraders and swingtraders, the following might be very interesting.
So what would the price earnings ratio of Ethereum be? If we assume the 5–5.2% staking rewards are your earnings + the 0.2% deflation of supply, we would be looking at earning of 5.2 to 5.4%. Dividing 1 by 5.3%, gives a price-earnings ratio of roughly 19.
For the ones unfamiliar with typical price-earnings ratios of stocks, let’s have a small benchmark. As said previously, Ethereum is the leading coin after Bitcoin, is actively developing the product, and is located in a high growth industry, so we have to compare it to other leading companies in high growth industries. If we look at Nvidia, they have a PE ratio of around 100, Alibaba has 130, Tesla right now if 54, but is actually used to be in the hundreds as well, Salesforce currently has PE ratio of larger 600. So, looking at this, one could conclude, and all narratives on deflationary and so on aside just looking at the fundamentals, that Ethereum would be undervalued if believing Crypto & web3 are growth industries. Of course, take it with a grain of salt, and this is no financial advice.
The analysis of course also has a limitation. On the earnings side, the 5% staking return are actually only paid to the people actively staking their Ethereum, and this is by far not everyone. We might frame it in another way though. If earnings is not really earnings, but only the earnings for the holders actively staking their Ethereum, then looking at it from a dividend perspective might be more applicable, because eventually what you are getting from staking could also be in the forms of dividends paid out by a company.
Interested in this? We did that analysis, find it HERE:
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Thank you for reading, happy trades, stay humble, and see you in the next article.
All information in this article may not be up-to-date anymore while reading and should not considered to be financial advice!
