MicroStrategy's Bitcoin Strategy Continues to Pay Off as Analysts Raise Price Targets

Bitcoin has been on a tear in the final quarter of 2024, leading many analysts to up their price targets for companies like MicroStrategy, which are heavily invested in the asset.

Bitcoin’s stellar performance in Q4 2024 has prompted several analysts to revise their price targets for companies like MicroStrategy (NASDAQ:MSTR) that are heavily invested in the cryptocurrency.

In a recent note, Benchmark analyst Mark Palmer raised the firm’s price target on MicroStrategy stock to $245, up from its previous projection of $215.

Palmer highlighted MicroStrategy’s ability to amplify its Bitcoin holdings through a strategy that the company terms “intelligent leverage.”

This refers to MicroStrategy’s use of convertible bonds to acquire Bitcoin, which allows the company to grow its crypto reserves through low-cost debt without putting a strain on its cash flow.

Benchmark specifically noted the company’s BTC Yield, a key performance indicator that measures the percentage increase in Bitcoin holdings relative to outstanding shares.

In 2024, this metric stood at 17.8%, surpassing previous years and showcasing MicroStrategy’s strategy of compounding its Bitcoin investments over time.

Value proposition

Some critics, however, argue that the high ratio between MicroStrategy’s net asset value (NAV) and its stock price suggests that the stock is overvalued relative to its direct Bitcoin holdings.

In simpler terms, this means that investors are paying a substantial premium for MicroStrategy shares beyond the direct value of its Bitcoin asset.

Palmer, however, pushed back against this critique.

“The value of MSTR is not just a function of its NAV,” he wrote in the Benchmark note, “but of the flywheel through which it uses a combination of low-cost debt and equity dilution to increase the amount of bitcoin it holds for each share of its stock.”

This leverage strategy has resulted in a 1,600% stock price increase since the company adopted its Bitcoin strategy in 2020, spearheaded by executive chairman and co-founder Michael Saylor.

Bernstein analysts have also expressed optimism, setting an even higher price target of $290, driven by their projection that Bitcoin could reach $1 million by 2033.

As of September 2024, MicroStrategy had 252,220 BTC, valued at approximately $10 billion.

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