‘Like Bitcoin on steroids’ — Why is MSTR stock trading at a 2.7x premium?

As a seasoned analyst with over two decades of experience in the financial markets, I have seen my fair share of unique investment strategies. MicroStrategy’s (MSTR) approach to Bitcoin (BTC) is undeniably one of the most intriguing ones I’ve come across recently.


According to MSTR-Tracker, the difference between MicroStrategy’s (MSTR) net asset value and its Bitcoin (BTC) holdings has increased significantly, reaching about a 270% advantage as of October 14, marking a three-year high.

'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?

The NAV premium for MicroStrategy (MSTR) is calculated by comparing its total market value to the worth of its bitcoin assets. Essentially, a greater NAV indicates that owning a share of MSTR has given investors returns approximately 2.7 times more than they would have received from just owning Bitcoin outright.

Important reasons why MicroStrategy’s stock price exceeds that of its Bitcoin holdings are due to the benefits of leverage and the substantial cash reserves generated by its software operations.

MSTR leverage creates premium vs. Bitcoin holdings

MicroStrategy boosts the size of its Bitcoin investments by employing financial tools like At-The-Market Equity Offerings (ATM) and Convertible Senior Notes, which allow it to increase these holdings more effectively.

By October 14th, the company had approximately $3.91 billion in long-term debt on its books, while its market capitalization stood at $35 billion. This suggests that the company’s assets are about 1.1 times more than its equity, indicating a degree of financial leverage.

From my perspective as a researcher, I can express that for each dollar of equity we hold, our company, Masterpiece (MSTR), manages approximately $1.1 in assets, primarily invested in Bitcoin. This advantageous position is largely due to strategic debt utilization.

If the value of a single Bitcoin rises by 10%, then the worth of MicroStrategy’s Bitcoin holdings would also increase by the same amount, resulting in an equivalent rise in their stock price. However, since MicroStrategy uses borrowed funds, they are able to control more Bitcoins than they could if they were using only their own equity.

'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?

In simpler terms, when Bitcoin rises by 10%, the total value of the company’s assets increases by approximately 11%, not just 10%. This indicates that the premium in MicroStrategy’s Net Asset Value (NAV) may be due to leverage.

MicroStrategy’s software business

Despite being frequently underestimated, MicroStrategy’s software division brought in approximately $111 million in earnings during the second quarter, with a consistent increase in subscription-based income. This steady stream of revenue serves as a financial foundation for managing its debts and continuing its Bitcoin acquisition plans.

'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?

Although managing Bitcoin strategy isn’t our main priority, the software aspect plays a crucial role in allowing MSTR to execute this strategy without liquidating Bitcoin to meet debt commitments, thus preserving its Bitcoin reserves and enhancing its Net Asset Value (NAV) advantage.

Bitcoin “macro strategy” liked by MSTR investors

In summary, investor trust in CEO Michael Saylor’s bold Bitcoin purchasing approach remains robust. After choosing Bitcoin as its main treasury asset in August 2020, MicroStrategy (MSTR) has repeatedly surpassed the performance of Bitcoin and the majority of conventional stocks.

For instance, MSTR has increased by 1,700% since purchasing its first Bitcoin. Meanwhile, BTC’s returns in the same period have been around 500%, prompting analyst Maartunn to call it “Bitcoin on steroids.”

'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?

As a crypto investor reflecting on the performance of traditional markets, I’ve noticed that renowned US stock indexes like the S&P 500 and the Nasdaq Composite have been quite impressive. Specifically, they’ve yielded returns approximately 80% and 70%, respectively.

People are ready to pay more for shares in MSTR as they anticipate that the company will continue boosting its Bitcoin holdings in the future, especially if Bitcoin experiences another period of growth.

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2024-10-14 11:36