Home / News / Crypto / Bitcoin / Why MicroStrategy Stock Dip Offers a Lucrative Bitcoin Play – And It’s Better Than ETFs
6 min read

Why MicroStrategy Stock Dip Offers a Lucrative Bitcoin Play – And It’s Better Than ETFs

Last Updated January 18, 2024 9:19 AM
Giuseppe Ciccomascolo
Last Updated January 18, 2024 9:19 AM

Key Takeaways

  • MicroStrategy’s stock plunged by 33% after Bitcoin ETF approval, sparking a broader sell-off in related stocks.
  • The company, which has a noteworthy Bitcoin stash, is a compelling proxy for Bitcoin despite its modest market cap.
  • Both technical and fundamental indicators point to MicroStrategy’s stock being undervalued and oversold, signaling a favorable buying opportunity.

MicroStrategy (MSTR) recently faced a significant downturn, plummeting by 33% from its latest peak. This decline coincided with the United States Securities and Exchange Commission (SEC) approval of 11 spot Bitcoin exchange-traded funds (ETFs) for American markets, triggering a broader sell-off in Bitcoin-related stocks. The argument against MicroStrategy lies in the belief that there are superior alternatives for gaining exposure to Bitcoin.

This trend isn’t exclusive to MicroStrategy because the new Bitcoin ETFs have led to a widespread decline in most Bitcoin-related stocks. Despite concerns about companies with high multiples, MicroStrategy stands out due to its substantial Bitcoin holdings, making its multiples less relevant.

MicroStrategy vs ETFs

MicroStrategy boasts  the second-largest holding of Bitcoins, approximately 190,000, trailing only Grayscale Bitcoin Trust (GBTC), which owns nearly 650,000 BTC, valued at around $28 billion.

Despite neither being a Bitcoin fund nor an ETF, MicroStrategy, a software company with a stable and profitable enterprise, stands out for its financial approach. By converting its cash holdings into Bitcoin and leveraging low percentage debt, it has amassed a significant Bitcoin stockpile now valued at approximately $8.2 billion.

Even after a post-ETF approval sell-off, MicroStrategy’s market cap is only around $7.5 billion. This makes it an attractive proxy for Bitcoin. Considering its software business, with projected sales of around $550 million next year, its fair value could be estimated at $11.5 billion, aligning with a Bitcoin value of around $43,000.

The Financial Prophet  manager and investor Victor Dergunov said : “While MicroStrategy’s stock should benefit as Bitcoin rises, its current valuation seems disconnected. Following Benjamin Graham’s wisdom – “The market is a voting machine in the short term, but it’s a weighing machine in the long run” – recent spot Bitcoin ETF approvals have led the market to vote “No” for MicroStrategy.”.

He added: “This has caused a significant price drop, creating a mispricing opportunity. As the market returns to weighing MicroStrategy’s true value, its share price is expected to be repriced significantly higher, reflecting both its Bitcoin and software enterprise value.”

Buy The Dip

MicroStrategy witnessed a significant 33% decline from its recent peak of around $725 a few weeks ago. This correction was spurred by the stock surging beyond $700. Despite the pullback, MicroStrategy is now notably undervalued, trading below $500.

The recent surge in trading volume, among the highest recorded for the stock, suggests that the selling pressure may have been excessive, potentially paving the way for a rebound.

Source: Seeking Alpha/StockCharts.com
MicroStrategy is undervalued, representing a good opportunity for investors

Crucial technical indicators, including RSI, CCI, and the full stochastic, indicate that MicroStrategy is entering oversold territory. This alignment of oversold technical conditions with a fundamentally undervalued scenario suggests the potential for a strong recovery soon.

Dergunov said: “Many may wonder why we choose to hold MicroStrategy instead of the now-available GBTC. While GBTC offers a solid option, its trading on a major exchange reduces the likelihood of pricing discrepancies.”

He added: “Given that GBTC should closely mirror Bitcoin’s price, and as one may already own Bitcoin through a cryptocurrency exchange, holding GBTC seems redundant in this case. Instead, I prefer exploring Bitcoin-related opportunities in stocks.”

Furthermore, the strategic decision of companies like Tesla, Coinbase, and Marathon Digital Holdings to hold Bitcoin instead of traditional cash on their books aligns with Dergunov’s preference.

The Financial Prophet manager said: “MicroStrategy stands out for its bold move, strategically acquiring Bitcoin at an average price of around $31,000. With Bitcoin currently trading around 40% above MicroStrategy’s average purchase price, there’s a promising outlook for further appreciation.”

While the Grayscale Bitcoin Trust is a top Bitcoin ETF, MicroStrategy distinguishes itself as an ideal Bitcoin proxy. It offers unique opportunities for trading around market peaks and troughs. Additionally, the elevated option premiums on MicroStrategy make it an excellent candidate for the covered call dividend (CCD) strategy.

Dergunov said: “By valuing MicroStrategy’s Bitcoin stockpile at approximately $8.2 billion, considering Bitcoin at $43,000, and projecting the software business to generate around $550 million in sales by 2025, we arrive at a fair value of approximately $11.5 billion. If Bitcoin reaches $50,000, MicroStrategy’s potential worth could be nearly $12.8 billion. Accounting for long-term debt of $2.2 billion brings the current valuation to $9.3 billion, with a potential valuation of $10.6 billion if Bitcoin hits $50,000,”

MSTR Risks And Future Value

With Bitcoin hovering around $50,000, MicroStrategy’s potential valuation stands at approximately $10.6 billion, while its current market cap is only around $7.5 billion. Presently valued at $9.3 billion, MicroStrategy’s market cap would need to surge by 24% to align with its fair value. This suggests that, with Bitcoin around $43,000, a reasonable target for MicroStrategy’s stock is approximately $600.

Considering a Bitcoin price of $50,000, MicroStrategy’s market cap should theoretically increase by 40%. This would imply a target stock price of $680. Exploring further, if Bitcoin reaches its all-time high of $69,000, MicroStrategy’s market cap could reach around $14.2 billion. This would signal a 90% upside and a stock price target of approximately $920.

In the event of a new Bitcoin all-time high at $75,000, MicroStrategy’s market cap may reach approximately $15.4 billion, presenting a 105% upside. This dynamic suggests a stock price range of $920 to $995 for MicroStrategy.

Despite the optimistic outlook, MicroStrategy does face significant risks, primarily tied to a decline in Bitcoin (BTC) prices. Any drop in Bitcoin’s value would likely impact MicroStrategy’s stock price. Additionally, the inversion of MicroStrategy’s premium could lead to steeper declines in its stock price compared to Bitcoin.

Company-specific challenges, such as revenue and profitability issues, could further contribute to a decline in sentiment and stock price. Investors should carefully assess these and other risks before considering an investment in MicroStrategy.

Was this Article helpful? Yes No