Originally published on: October 14, 2024
MicroStrategy’s stock has been dubbed as “Bitcoin on steroids” for a reason. As of October 14, the company’s net asset value premium to its Bitcoin holdings soared to an impressive 270%, the highest in three years, as reported by MSTR-Tracker.
What’s driving this premium valuation for MicroStrategy stock compared to its Bitcoin holdings? Let’s delve into the key factors that are making investors flock to MSTR shares.
One crucial aspect is MicroStrategy’s adept use of leverage and free cash flows from its thriving software business. By leveraging financial instruments like at-the-market equity offerings and convertible senior notes, the company amplifies its Bitcoin holdings significantly.
On October 14, MicroStrategy held around $3.91 billion in long-term debt against a market cap of $35 billion, showcasing its 1.1-times leverage to assets ratio, mainly comprising Bitcoin. This suggests that for every dollar of equity, MSTR controls $1.1 of assets through its strategic use of debt.
Interestingly, MSTR’s software business also comes into play, generating approximately $111 million in revenue in the second quarter alone. This steady cash flow helps the company service its debt and sustain its Bitcoin acquisition strategy without needing to liquidate BTC holdings to cover obligations.
CEO Michael Saylor’s bold Bitcoin acquisition strategy has instilled immense confidence in the market. Since MicroStrategy embraced Bitcoin as its primary treasury asset in August 2020, the company has consistently outperformed Bitcoin and traditional stocks.
For instance, MSTR has surged by a staggering 1,700% since its initial Bitcoin purchase, outstripping BTC’s returns of 500% and traditional indices like the S&P 500 and Nasdaq Composite by a significant margin.
Investors are willing to pay a premium for MSTR shares in anticipation of continued growth in its Bitcoin holdings, especially if Bitcoin embarks on another bullish streak.
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