It has come to light that Kerrisdale Capital recently released a report suggesting that MicroStrategy’s shares are currently trading at an unjustifiably high premium. This premium, which represents over two and a half times the spot price of Bitcoin, has raised concerns about the true value of the company’s stock. Kerrisdale Capital argues that for MicroStrategy’s shares to be justifiable, Bitcoin would need to be trading at $177,000. This begs the question: is the current premium on MicroStrategy’s shares sustainable in the long run?
The analysis conducted by Kerrisdale Capital brings to light the distorted relationship between Bitcoin and MicroStrategy. Despite MicroStrategy’s software analytics division contributing only 3% to the company’s overall value, much of its Bitcoin acquisitions have been financed through debt and equity offerings, leading to shareholder dilution. While some believe that the premium on MicroStrategy’s shares is warranted due to various factors such as reinvestment of software business cash flows, lack of management fees, and ease of trading, Kerrisdale Capital remains unconvinced.
One striking point made by Kerrisdale Capital is the comparison of MicroStrategy’s current premium to historical averages. The fact that MicroStrategy trades at a 2.6x equity premium to Bitcoin, surpassing the historical average of 1.3x, raises red flags about the overvaluation of the company’s shares. Additionally, Kerrisdale notes that this premium has only been exceeded on 6% of trading days since 2021, indicating that the current valuation may be unsustainable in the long term.
With the increasing accessibility of cryptocurrencies through brokerages and low-fee investment options, the appeal of investing in companies like MicroStrategy solely for exposure to Bitcoin has diminished. While CEO Michael Saylor remains confident in MicroStrategy’s value proposition as a Bitcoin-focused company, the changing landscape of cryptocurrency investments poses a challenge to the company’s future growth prospects. Saylor’s emphasis on MicroStrategy’s unique offering of leverage without fees may not be enough to sustain the current premium on the company’s shares.
Kerrisdale Capital’s critical analysis of MicroStrategy’s overvaluation raises important questions about the sustainability of the company’s current premium. With the changing landscape of cryptocurrency investments and the distorted relationship between Bitcoin and MicroStrategy, investors may need to reevaluate the true value of the company’s shares. As the debate on the overvaluation of MicroStrategy continues, it remains to be seen whether the company can justify its current premium in the long term.
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