Report Suggests MicroStrategy Stock Trades at Unwarranted High Premium Compared to Bitcoin’s Value

In a recent analysis, Kerrisdale Capital stated that the stock price of MicroStrategy has reached an excessive level. “Our position includes being bullish on Bitcoin while simultaneously bearish on MicroStrategy stock, which we view as a Bitcoin surrogate trading at an excessively high premium over its underlying value,” the firm noted.

On Thursday, a significant drop of 14% was observed in MicroStrategy’s stock price post the publication of this insight.

Excessive Premium Concerns

The investment company suggested that the current premium of MicroStrategy’s stock, quoted as more than two times the current market price of Bitcoin, is not justified. They assert that Bitcoin’s price would need to soar to $177,000 per BTC for this premium to be reasonable.

Kerrisdale Capital is of the opinion that this premium attributed to MicroStrategy is expected to fall, which presents an opportunity for a strategic trading pair.

It’s important to note that the firm’s view doesn’t reflect a negative stance on Bitcoin or MicroStrategy as standalone entities, but rather points to the problematic interplay between the two.

According to Kerrisdale, MicroStrategy’s software analytics sector contributes a mere 3% to the firm’s entire valuation, and the company’s method of financing its Bitcoin purchases via debt and equity has diluted existing shareholders. The firm remarks that, despite MicroStrategy’s increasing Bitcoin reserves, the Bitcoin per share ratio has not seen substantial enlargement over the last few years.

While some stakeholders support the premium on MicroStrategy’s shares based on the company’s capacity to reinvest profits from its software business, absence of management costs, liquidity, and trading ease, these justifications are dismissed by Kerrisdale as not convincing enough.

Trading at a 2.6x equity premium relative to Bitcoin, MicroStrategy stock is considerably above the 1.3x average historically observed. Kerrisdale points out that such a high premium over Bitcoin has been seen in only 6% of the trading days since the beginning of 2021, thereby signaling a potential overvaluation of the stock.

Dedicated Bitcoin Development and Leverage Strategy

While previously regarded as a prominent vehicle for investing in Bitcoin, the easier access to cryptocurrencies through brokerages and cost-effective investment vehicles has lessened its allure.

Saylor has indicated his confidence that MicroStrategy will continue to be attractive to the investor community. He has underlined the unique value proposition of MicroStrategy for Bitcoin enthusiasts compared to Exchange Traded Funds (ETFs), which impose fees without providing leverage, as contrasting to MicroStrategy’s approach of offering leverage without fees.

Furthermore, Saylor announced a shift in MicroStrategy’s identity to that of a “Bitcoin development company,” affirming the success of its strategy and its leading position as a public Bitcoin holder. The company currently possesses 214,246 BTC, showing a 54% inflation from the prior year’s holdings.

Saylor has discussed the agility of MicroStrategy as a corporation to strategically manage both capital and operations with the objective of amassing more Bitcoin for its shareholders and contributing to the Bitcoin ecosystem by engaging in software development and utilizing capital market avenues.