Analysts surveyed by Bloomberg called the high growth rate of MicroStrategy shares unreasonable

What’s new? Analysts surveyed by Bloomberg have called MicroStrategy’s (MSTR) high rate of share price appreciation unwarranted given its declining revenue and cash flow constraints. The Michael Saylor-founded analytics software company began buying bitcoin in 2020 to hedge inflation, and has since become the largest holder of the asset among public companies, accumulating $18,2 billion worth of coins at the current exchange rate. MSTR has surged 1700% in that time, outperforming the S&P 500 index in terms of rate of return growth.

Material by Bloomberg

What else is known? Analysts are now beginning to debate whether a stock price premium that exceeds MicroStrategy’s net asset value by more than 200% is too high. They expect the company to record its third consecutive quarterly loss after the close of trading in October due to another impairment write-down on the value of its bitcoin assets.

TD Cowen managing director of equity research Lance Vitanza expects the value of MSTR to stop skyrocketing and settle in the $200-215 range.

However, at the moment there is no tendency to decrease the growth rate: at the close of trading on October 29, the value of MicroStrategy shares amounted to a record for more than 20 years $258,24. This was helped by bitcoin’s jump to an all-time high of $73 500, which was first set in March.

Since the beginning of 2024 alone, MSTR have risen 300%, outpacing bitcoin itself in terms of returns (it has added 71%). Among US large-cap companies tracked by Bloomberg, MicroStrategy is second only to used-car sales platform Carvana, whose shares have surged more than 4300% since panic over the risk of bankruptcy at the end of 2022. Nvidia shares are up about 870%.

MicroStrategy has moved from using cash flow to issue convertible bonds to buy bitcoin, and now plans to explore other ways to fund more purchases. Saylor says he is essentially borrowing money at 1% to buy bitcoin, which has had a compound growth rate of about 50% over four years.

The company has already conducted hundreds of millions of dollars worth of bond sales several times this year, then used those funds to buy bitcoins.

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In total, the company holds 252 220 bitcoins purchased for $9,9 billion at an average price of $39 266 per coin. Given the current exchange rate, the company’s unrealized profit from its investment in its first cryptocurrency is $8,3 billion.

In just four years, the company has made about 40 separate bitcoin purchases. Bloomberg notes that these acquisitions created difficulties in accounting and quarterly results.

The agency estimates that MicroStrategy’s impairment losses in Q3 could exceed $200 million. Conversely, if the company implements the new accounting rule and values its crypto assets at market value at the end of the reporting period, it could result in serious tax liabilities.

On the other hand, the new rules could turn loss-making MicroStrategy into a profitable one. Analysts surveyed by Bloomberg estimate that the company will report a net profit of $2 billion next year, compared to a loss of about $200 million in the current year.

Earlier, experts reported that MicroStrategy is unlikely to be included in the S&P 500 index in the near future, as a prerequisite for candidate companies is profitability over the last year and quarter. In turn, MicroStrategy has consistently recorded losses during this period, except for the fourth quarter of 2023.

In turn, Benchmark analysts noted that inclusion in the index is possible if MicroStrategy adopts new accounting standards. It now records unrealized losses from the loss of value of bitcoins purchased, but in 2023, the Financial Accounting Standards Board (FASB) allowed companies investing in cryptocurrencies to measure assets on the balance sheet at fair value. These changes can be reflected in net income each reporting period.

Earlier this month, it was reported that Microsoft shareholders will consider investing in BTC at a meeting on December 10. Saylor offered the corporation his help in increasing capitalization by another $1 trillion.