In a recent report, Kerrisdale Capital has raised concerns about the overvaluation of MicroStrategy’s shares. The company argues that MicroStrategy’s shares are trading at an unjustifiable premium compared to the spot price of Bitcoin, which it serves as a proxy for. This premium, which represents over two and a half times the value of Bitcoin, is deemed unwarranted by Kerrisdale Capital. According to their analysis, Bitcoin would need to be trading at $177,000 to justify the current premium on MicroStrategy’s shares.
Lack of Justification
Kerrisdale Capital points out that MicroStrategy’s software analytics division only contributes 3% to the company’s overall value. Most of the funds used by MicroStrategy to acquire Bitcoin come from debt and equity offerings, which ends up diluting shareholder value. Despite increasing its Bitcoin holdings, the amount of Bitcoin per share has not seen a significant change in recent years, something that Kerrisdale Capital finds concerning.
MicroStrategy’s current premium, trading at a 2.6x equity premium to Bitcoin, is significantly higher than the historical average of 1.3x. Kerrisdale Capital notes that this premium has only surpassed 2x on 6% of trading days since 2021, indicating a potential overvaluation in MicroStrategy’s shares. While some argue for the premium based on the company’s ability to reinvest software business cash flows and other factors, Kerrisdale Capital remains unconvinced.
The perception of MicroStrategy as a primary route for Bitcoin investment is shifting due to the increasing accessibility of cryptocurrencies through brokerage platforms and low-fee investment options. CEO Michael Saylor has expressed confidence in MicroStrategy’s value proposition for investors, emphasizing the unique offering it provides for those bullish on Bitcoin. Despite the company’s rebranding as a “Bitcoin development company” and its significant BTC holdings, Kerrisdale Capital believes that the current overvaluation of MicroStrategy’s shares poses a risk for investors.
Kerrisdale Capital’s critical analysis of MicroStrategy’s shares sheds light on the potential risks associated with the company’s current valuation. The overvaluation of MicroStrategy’s shares compared to the value of Bitcoin raises concerns about the sustainability of this premium in the long term. Investors should carefully consider the information presented by Kerrisdale Capital before making any investment decisions related to MicroStrategy.