Why Silvergate Capital Stock Jumped Today

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What happened

Shares of crypto bank Silvergate Capital (NYSE:SI) jumped on Wednesday, adding as much as 9%. As of 1:58 p.m. ET, the stock was still up 6.9%.

The catalyst that drove the crypto-friendly bank higher was an upgrade courtesy of a Wall Street analyst, as well as a wide-ranging recovery in the cryptocurrency market.

So what

Michael Perito — an analyst with Keefe, Bruyette & Woods — upgraded Silvergate Capital to outperform (buy) from market perform (hold), while simultaneously assigning a $225 price target, according to The Fly. His new estimate would represent potential upside for investors of more than 74% over the coming year, compared with the stock’s closing price on Tuesday. 

Image source: Getty Images.

The analyst pointed to the recent sell-off, noting that it resulted in an attractive buying opportunity. He believes that in advance of rising interest rates, investors should increase their exposure to digital-friendly banks positioned to benefit from those higher rates, “while also still having fintech type growth potential from a user and revenue perspective.”

He may be on to something. Through yesterday’s market close, Silvergate Capital stock had fallen as much as 42% since November on no company-specific news.

The selling appears to be overdone, as analysts’ consensus estimates are calling for fourth-quarter revenue of $52.7 million, which would represent year-over-year growth of more than 94%. Profits are also expected to shine, with earnings per share growing 53%. If Silvergate succeeds in topping those expectations, this would mark the fifth consecutive quarter the company has done so.

Now what

Silvergate stock was on a tear last year, nearly doubling over the course of 2021, as interest in cryptocurrencies exploded, led by excitement regarding their prospects to become universally used and accepted.

However, there’s been a broad sell-off in the digital assets market since mid-November, with many cryptocurrencies losing one-third or more of their value. Shares of Silvergate Capital have become inexorably tied to crypto and — right or wrong — follow the ebbs and flows of the broader cryptocurrency market.

That said, as investors piled back into cryptocurrencies today, Silvergate Capital got an additional boost.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.