Summary MicroStrategy's stock dropped 33% due to the approval of Bitcoin ETFs, causing a sell off in Bitcoin-related stocks. MicroStrategy owns a significant number of Bitcoins, making it an attractive proxy for Bitcoin despite its low market cap. Technical and fundamental indicators suggest that MicroStrategy's stock is undervalued and oversold, presenting a buying opportunity. MicroStrategy ( MSTR ) stock got decimated recently, dropping by 33% from its recent high. The sell-off came as the SEC approved 11 spot Bitcoin (BTC-USD) ETFs for trade in U.S. markets. The argument for selling and even shorting MicroStrategy's stock is that there are better alternatives for exposure to Bitcoin. Also, it's not just MicroStrategy. With the new Bitcoin ETF rollout, most Bitcoin-related stocks are getting whacked. I understand the selloff in companies with exceptionally high multiples, but MicroStrategy's multiples don't matter. It owns a substantial number of bitcoins instead. MicroStrategy owns the second most significant stockpile of bitcoins ( roughly 190K ), behind only the Grayscale Bitcoin Trust ( GBTC ), which owns nearly 650K BTCs worth around $28 billion. The newly approved Bitcoin ETF from BlackRock ( IBIT ) has about $115 AUM , implying it holds only about 2,675 Bitcoins. Even the ultra-popular ProShares ETF ( BITO ), which holds Bitcoin futures (not actual Bitcoin), has about $2B in AUM. MicroStrategy is not a Bitcoin fund, and it's not an ETF. MicroStrategy is a software company with a stable and profitable enterprise. What makes MicroStrategy unique is that it took a revolutionary approach to modernizing its financials by converting its cash holdings into Bitcoin and taking out low percentage debt to build a considerable stockpile of Bitcoins now worth around $8.2 billion. Yet, MicroStrategy's market cap is only around $7.5 billion after the post-ETF approval sell-off, making it an extremely attractive proxy for Bitcoin as we advance. Additionally, MicroStrategy's software business is worth something, and with around $550 million in sales (projected) next year, it may be worth around $3.3 billion (six times sales). Therefore, MicroStrategy's fair value could be $11.5 billion, with Bitcoin around $43K. Of course, when Bitcoin moves higher, MicroStrategy's stock should also appreciate. Yet, its current valuation makes little sense. We return to Benjamin Graham's famous saying - "The market is a voting machine in the short term, but it's a weighing machine in the long run." Due to the recent spot Bitcoin ETF approvals, the market is voting "No" for MicroStrategy, causing its share price to crash, creating a miss-pricing opportunity in the market today. Once the market returns to weighing MicroStrategy, its share price should be repriced significantly higher, reflecting its Bitcoin value and the value of its software enterprise. Technically - The Buying Opportunity is Here MSTR (StockCharts.com) MicroStrategy's stock has experienced a considerable 33% drop after peaking around $725 several weeks ago. The stock got ahead of itself when it surged above $700, but MicroStrategy is considerably undervalued, with the stock below $500 now. Also, we see immense volume in recent sessions, illustrating some of the highest volume the stock has ever seen. This dynamic implies that the selling may be overdone here, and a rebound could soon begin. Also, technical indicators like the RSI, CCI, the full stochastic, and others illustrate that MicroStrategy is becoming massively oversold. Therefore, we're seeing oversold technical conditions converge with an undervalued fundamental scenario, suggesting MicroStrategy could have a solid recovery as we advance. MicroStrategy Or The Grayscale Bitcoin Trust? Many market participants may ask why we own MicroStrategy when we can now own GBTC. GBTC is fine, but we likely won't see missed pricing opportunities now that GBTC trades on a significant exchange. GBTC should accurately track Bitcoin's price. But I already own Bitcoin through a cryptocurrency exchange. Therefore, owning GBTC is redundant in my situation, and I'd instead look for a Bitcoin-related opportunity in a stock. Also, I like the idea of a company owning Bitcoin instead of holding a depreciating asset like cash on its books. Several companies like Tesla ( TSLA ), Coinbase ( COIN ), Marathon Digital Holdings ( MARA ), and others hold some Bitcoin 10,000 - 20,000 , but MicroStrategy went all in, and they did it smartly. MicroStrategy's average price per BTC is around $31K . So, Bitcoin is about 40% above the company's average price paid per BTC, and it's presumably moving higher from here. The Grayscale Bitcoin trust is okay to own and is the top Bitcoin ETF. However, you won't get the type of miss pricing with MSTR, making MicroStrategy an ideal Bitcoin proxy to decrease and increase around the peaks and troughs. Also, MicroStrategy's option premiums are sky-high, making the stock an exceptional candidate for the covered call dividend "CCD" strategy. How Much is MicroStrategy Worth? So, we determined that MicroStrategy's (roughly 190K) BTC stockpile is worth approximately $8.2 billion, with Bitcoin around $43K. Also, MicroStrategy's software business should provide around $520 million in sales this year and roughly $550 million in 2025. Using a software industry standard price-to-sales ratio of about six gives us a business valuation of approximately $3.3 billion for MicroStrategy's software enterprise. Therefore, we have an approximate fair value of around $11.5 billion for MicroStrategy. Also, with Bitcoin around $50K, MicroStrategy could be worth nearly $12.8 billion. Subtracting its long-term debt of $2.2 billion brings us to a valuation of $9.3 billion now and a potential valuation of $10.6 billion if Bitcoin hits $50K. Bitcoin - Likely Heading Higher From Here Bitcoin day chart (Binance.com ) Bitcoin has been in a long-term upward trend since bottoming around $15.5K at the end of the 2022 bear market. While more consolidation around $40-42K is likely, I believe there is a high probability that Bitcoin's bull market will continue, especially with the Fed adopting a more accessible monetary stance. Lower rates and increased institutional adoption may be the green light for Bitcoin to appreciate. Therefore, $50K Bitcoin is close, and the ATH is around the $69K range. It will be exciting to own MicroStrategy's stock as Bitcoin moves toward $50K and then to new ATHs. MicroStrategy's stock could experience increased demand, creating a premium in its share price relative to the Bitcoin value that it owns. MicroStrategy's short interest is massive, about 20%, or roughly $1.82 billion . These market participants may be betting against Bitcoin, and this dynamic illustrates that we could see a significant short-covering rally in the months ahead. Unlocking MicroStrategy's Future Value With Bitcoin around $50K, MicroStrategy could be worth around $10.6 billion, and its market cap today is only about $7.5 billion. With its current valuation at about $9.3 billion, MicroStrategy's market cap would need to surge by 24% to reach fair value. Therefore, with Bitcoin around $43K, MicroStrategy's stock should be about $600. With Bitcoin around $50K, MicroStrategy's market cap should be about $10.6 billion, suggesting a 40% increase for the stock. This dynamic means that a $680 price target is appropriate for MicroStrategy's stock, with Bitcoin around $50K. If we explore further, we see that at around its ATH at $69K Bitcoin, MicroStrategy's market cap could be around $14.2 billion, implying a 90% upside and a price target of about $920 for MicroStrategy's stock. If Bitcoin makes a new ATH at around $75K, MicroStrategy's market cap will reach approximately $15.4B, roughly a 105% upside from here. This dynamic implies that MicroStrategy's stock should reach $920 - 995 as Bitcoin achieves new highs around the $69-75K range. Risks to MicroStrategy Despite my bullish thesis, MicroStrategy faces considerable risks. The primary risk MicroStrategy faces is a declining BTC. If Bitcoin prices fall, so will MicroStrategy's stock price. Also, MicroStrategy's premium could continue inverting, suggesting its stock could drop more precipitously than the price of Bitcoin. Also, MicroStrategy could face company-related setbacks, decline in revenue growth, and profitability problems. The sentiment could worsen, resulting in a lower premium and a declining stock price. Investors should examine these and other risks before investing in MicroStrategy's stock.
