- Benchmark analysts raised price target for MicroStrategy, pointing to the company's unique approach to growing its Bitcoin holdings.
- Some argue that MicroStrategy’s stock is overvalued, but the company’s strategy continues to drive analyst optimism.
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.
In a recent note from Benchmark, analyst Mark Palmer raised the company’s target for MicroStrategy’s stock (MSTR) to $245 from its previous projection of $215.
Palmer highlighted the company’s ability to leverage its Bitcoin holdings through what it describes as “intelligent leverage.”
This refers to MicroStrategy’s use of convertible bonds to acquire Bitcoin, enabling it to grow its reserves through low-cost debt without straining 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 shares.
In 2024, this metric hit 17.8%, outpacing prior years and highlighting MicroStrategy’s ability to compound its Bitcoin investments over time.
Value proposition
However, some critics argue that the high ratio between MicroStrategy’s net asset value (NAV) and its stock price suggests the stock is overvalued compared to its actual Bitcoin holdings.
In simpler terms, this means that investors are paying a significant premium for MicroStrategy shares beyond the direct value of its Bitcoin asset.
Palmer disagrees, however.
“The value of MSTR is not just a function of its NAV,” he writes 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 led to a stock price growth of 1,600% since the company adopted its Bitcoin strategy in 2020 under the guidance of executive chairman and co-founder Michael Saylor.
Bernstein analysts have also echoed this optimism, setting an even higher target of $290, driven by their forecast that Bitcoin could reach $1 million by 2033.
As of September 2024, MicroStrategy holds 252,220 BTC, worth nearly $10 billion.
