Redburn-Atlantic starts eToro stock coverage with neutral rating

On Monday, Redburn-Atlantic analysts initiated coverage on eToro Group (NASDAQ: ETOR), assigning a Neutral rating and setting a price target of $68. The analysts emphasized eToro’s unique brokerage model, which centers around social investing and its distinctive copy-trading technology. The company, currently valued at $5.75 billion, has shown remarkable momentum with a 12.18% return in the past week, though InvestingPro data indicates the stock is in overbought territory.

eToro’s primary markets are described as under-penetrated, with significant growth opportunities driven by increasing retail participation in stock markets and market share gains in fragmented markets. The analysts noted that expansion in the U.S. presents challenges due to entrenched competition, low brand recognition, and regulatory uncertainties surrounding the copy-trading product. According to InvestingPro analysis, despite these challenges, the company maintains strong liquidity with a current ratio of 3.31, though it faces pressure from weak gross profit margins of 2.76%.

The report highlighted eToro’s strategic shift from a "growth at all costs" approach to a focus on profitable growth following the termination of its SPAC merger in 2022. The company now operates with a leaner cost structure and significant operating leverage, though its revenue remains highly cyclical, particularly in the crypto sector.

Since its listing on the Nasdaq on May 13, eToro’s stock has risen approximately 26% from its offer price of $52. The stock trades at about 28 times the projected 2026 P/E ratio, reflecting a 47% premium compared to its global peers, in line with a stronger earnings growth outlook.

The analysts concluded their coverage by expressing the need for greater confidence in factors beyond the company’s control, which influenced their decision to assign a Neutral rating and a $68 price target.

In other recent news, eToro Group successfully completed its initial public offering (IPO), raising $403 million. This financial milestone involved the sale of 13,711,470 shares of Class A common stock at $52 per share. The IPO was led by prominent financial institutions, including Goldman Sachs, Jefferies, UBS, and Citigroup (NYSE:C). Additionally, eToro announced plans to raise about $620 million in an upsized U.S. IPO, pricing its shares above the initial target range. The shares are set to trade on the Nasdaq Global Select Market.

On the analyst front, Citizens JMP initiated coverage of eToro with a Market Outperform rating, citing the company’s move toward consistent profitability and potential for growth in the retail investing market. Jefferies also began coverage with a Buy rating, highlighting eToro’s strong market presence in the EU and UK. UBS, however, offered a Neutral rating, noting the need for eToro to demonstrate consistent execution in its growth strategy. These developments reflect eToro’s strategic positioning and potential for expansion in the evolving financial markets.

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