MicroStrategy (MSTR), a software intelligence company listed on Nasdaq, has significantly outperformed Bitcoin (BTC) in the past year.
In the span of a year, MSTR stock has surged by over 500% and has seen a year-to-date increase of 150%, reaching approximately $1,279 per share as of May 21. In comparison, Bitcoin’s price has risen by 166% in a year and around 60% year-to-date.
The reason behind MicroStrategy’s outperformance of Bitcoin lies in the investor confidence in the company’s management, its strategy of using debt to acquire more Bitcoin, and the potential for future growth beyond the value of its Bitcoin holdings alone.
In the first quarter of 2024, MicroStrategy reported revenues of $115.2 million, falling short of analyst expectations of $121.73 million and reflecting a 5.5% year-over-year decline. The company also posted a net loss of $53.1 million, or $3.09 per share, in stark contrast to the net income of $461.2 million, or $31.79 per share, reported in the same period last year.
Despite these numbers, MicroStrategy reported a net long-term debt of $3.55 billion, which can be covered by cash flows generated from its core business model. The company is now working on developing a Bitcoin-based decentralized ID solution in an effort to boost its revenues in the coming quarters.
MicroStrategy’s overvaluation compared to Bitcoin is due to the fact that the company’s Bitcoin per share has increased by 50% since the first quarter of 2021.
As of March 2024, MicroStrategy held 205,000 BTC with 17 million shares outstanding, resulting in approximately 0.012059 BTC per share.
Investors are willing to pay more for MicroStrategy shares than the equivalent value of Bitcoin per share, taking into account the company’s operational business and growth prospects.
This sentiment is also reflected in the performance of Coinbase’s stock (COIN), which has outperformed Bitcoin in the past year but is underperforming MicroStrategy due to an ongoing lawsuit filed against it by the U.S. Securities and Exchange Commission (SEC).
Similarly, Tesla (TSLA), which has been a top performer since the pandemic, is now underperforming Bitcoin for the first time since 2019 (and MicroStrategy) due to weaker earnings in recent quarters.
Mining stocks have also started to underperform Bitcoin and MicroStrategy, as seen in the returns of the Valkyrie Bitcoin Miners ETF (WGMI) in the past 12 months.
From a technical perspective, MSTR appears to be rebounding towards $2,000 after testing a support confluence. If the Bitcoin market continues to rally, MicroStrategy’s stock could reach new record highs, potentially surpassing Bitcoin’s rise. This makes MSTR an attractive short-term bet based on its recent premium increases compared to BTC.
However, a pullback in the Bitcoin market could result in a broader correction for MSTR, potentially surpassing BTC losses. MSTR’s primary downside target in the event of a correction is around $1,290, down 25% from current price levels.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any investment decisions.