MicroStrategy(NASDAQ: MSTR) gained outsized investor attention thanks to its growing investment in Bitcoin(CRYPTO: BTC). The enterprise software developer adopted a corporate strategy in 2021 that allows the company to use excess cash above its working capital needs to acquire and hold Bitcoin as its primary treasury asset.
The move was ill-timed because it came just before the financial markets nose-dived in 2022. But an investment of $10,000 in the stock at the start of 2023 would be worth $101,500 today.
An alternative to Bitcoin?
The price of a single Bitcoin has nearly tripled since the start of 2023, and that has greatly benefited MicroStrategy stock. The company held 214,400 Bitcoins as of its last quarterly report, and it continues to use proceeds from equity and debt financings and excess cash from operations to fund its cryptocurrency investment.
However, diligent investors will notice that the company's market cap exceeds the value of its Bitcoin holdings. The market cap is currently $26 billion, which is roughly twice the value of its crypto holdings at the end of the first quarter.
Even after taking into account the annual revenue from its software business of $489 million, the stock looks expensive. But this doesn't mean MicroStrategy is overvalued, since the value of the company could increase substantially depending on the future value of Bitcoin.
MicroStrategy shares will likely continue to trade at a premium to the value of its crypto holdings. Investors view the stock as a more efficient means to invest in Bitcoin through their current stock broker without the inconvenience of opening another account with a cryptocurrency exchange.
The downside is that the shares could underperform the cryptocurrency during the next market dip due to the stock's premium valuation. For these reasons, investors should buy shares only if they believe in the future of Bitcoin as a viable store of value versus alternative assets like gold.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
