Visionary or 'financial comedy'? Market participants weigh MicroStrategy's stock premium amid bitcoin buying spree

After surging more than 500% this year, MicroStrategy recently became one of the 100 biggest publicly traded companies in the United States. Once a corporate intelligence firm led by Michael Saylor, the company has transformed itself by buying up Bitcoin over the past five years. However, some question whether the market is giving the stock too much of a premium.

On Nov. 20, MSTR shares surpassed the SPDR S&P 500 ETF Trust (SPY) and Tesla (TSLA) to become the market's most-traded stock in terms of dollar value. That same day, MicroStrategy had an all-time closing high of $473.83 per share. The S&P 500, meanwhile, is up about 25% this year.

Even the number of institutional holders of MicroStrategy jumped in the third quarter, with a total reported value of $15.3 billion. According to a recent 13F filing, Vanguard Group, the second-largest asset manager in the world, bought nearly 16 million shares, a 1,000% increase in its MSTR holdings.

MicroStrategy’s meteoric rise underscores the growing integration of bitcoin into corporate and institutional finance. By leveraging its core business and taking on significant debt to accumulate bitcoin, the company has become a high-stakes bet on crypto adoption, generating both admiration and skepticism in the market.

A leveraged bitcoin play

With MicroStrategy's purchase of 55,500 bitcoin for about $5.4 billion between Nov. 18 and 24 — its largest acquisition to date — the company now holds 386,700 BTC, worth over $36 billion at time of writing. Its total market cap is $85.5 billion. 

Stated another way, shares of MSTR are valued at 2.4 times the net asset value of bitcoin backing it, according to MSTR-tracker data. In January, that ratio was nearly 1-to-1. As its valuation soars and its influence grows, MicroStrategy’s journey serves as a litmus test for how far corporations can push the boundaries of digital asset investments and whether the rewards justify the risks.

"Fundamentals definitely don’t support the price," market structure expert Dennis Dick told The Block. "Being driven by retail and algos. This is a leveraged play on Bitcoin but the price has run a long ways from [the] intrinsic value of the holdings."

If MicroStrategy follows its plans, its holdings will only grow, and so will its debt. On Oct. 30, the company launched its “21/21 Plan,” aiming to raise $42 billion over three years—half through equity and half through fixed-income issuances—to fund additional bitcoin purchases. On Nov. 25, Saylor said the company's treasury operations delivered a "BTC Yield" of 59.3% year to date, providing a net benefit of about 112,125 BTC to MSTR shareholders.

The company defines its BTC Yield as a KPI representing the "percent change period-to-period of the ratio between the company’s bitcoin holdings and its assumed diluted shares outstanding."

Alexander Blume, CEO of Two Prime Digital Assets, said the term BTC Yield is a "language-laundering" of the real yield for what MicroStrategy is doing, which is bringing its bitcoin's net asset value closer to the company's market cap.

"It's more like a company getting less discounted to NAV than actual yield," Blume told The Block. "It's a clever tactic to take a negative (BTC being lower than share value) and make it a perceived positive."

"Considering their actual business revenues are on the decline though, if BTC drops sharply and stays there for long, this company is going to be vaporized in mountains of unpayable debt," Blume said.

'Basically financial comedy'

MicroStrategy's stock price makes "no sense," says Gary Black, managing partner with The Future Fund. He estimates the stock should be worth about $105 per share unless the company's bitcoins "are worth 4x what everyone else’s bitcoins are worth."

"MicroStrategy owned 331,200 bitcoins at last count, worth $31.2 billion at $100K, and has about $4.2 billion of net debt, which equates to $27B equity value," Black said in a Nov. 22 X post, when bitcoin and the stock's prices were loftier than they were at publication time four days later. "By comparison, MSTR’s stock market value is $106 billion using the company's most recent share count. The software business isn’t worth much."

In its third-quarter earnings release, MicroStrategy reported revenues of $116.1 million, which missed consensus estimates by about $8 million and were down 10.3% from last year.

"The underlying business has no growth," Black said. "It would be like a company issuing cash or debt and then buying marketable securities. No one will pay for growth from that since anyone can buy bitcoin."

Though Citron Research recently praised Saylor’s vision for selling debt to fund bitcoin purchases, the activist investor noted that the stock’s massive runup has been overheated when announcing its short position in the stock.

"Citron was the first to tell readers that MicroStrategy was the ultimate way to invest in Bitcoin. Fast forward to today: $MSTR has skyrocketed to over $5,000 (adjusted)," Citron said on Nov. 21. "$MSTR’s volume has completely detached from BTC fundamentals. While Citron remains bullish on Bitcoin, we’ve hedged with a short $MSTR position."

That short position caused MicroStrategy's stock to sell off nearly 20% in a day and hasn't recovered. At the time of publication, the stock trades around $368 per share.

The detachment from fundamentals has led some to compare MicroStrategy to the meme-stock craze of 2021.

"MSTR is not a meme stock in the traditional sense," Louis Sykes, a crypto analyst with All-Star Charts, told The Block. "Unlike GameStop or AMC, which were propelled by Reddit community activism, MSTR's movement lacks that cultural meme stock DNA. That said, its fundamentals are wild - trading at a 3x premium to Bitcoin reserves is basically financial comedy. As they say in markets, 'fundamentals are just a suggestion' right now."

Roundhill Investments cofounder Will Hershey said there is a more straightforward explanation for the rationale behind the increasing premium. He noted that the first levered single-stock ETF referencing MSTR began trading on Aug. 15. On that date, MicroStrategy closed with a market cap of $25.6 billion. The two levered MSTR ETFs have since grown to $3.8 billion in AUM as of Nov. 18.

"Adjusting for their 2x target exposures equals $7.7 billion in exposure. Against MSTR current market cap of $86.5 billion, this represents a remarkable 8.9% of the company’s total market cap," Hershey said in a post on X. "In my opinion this has been a significant driving factor in MSTR’s outperformance. From August 15th through [Nov. 18] BTC is up 61%, while MSTR market cap is up 237%."

What's next?

The price of bitcoin has appreciated about 110% year to date, with a 23% surge since Election Day in early November. MSTR is still higher by 440% and 43%, respectively, in that time.

"While MSTR’s controversial strategy has attracted many detractors, its dramatic impact on the company’s share price has provided ample justification, as its stock has outperformed those of almost every large company in the U.S. during the past four-plus years," Benchmark analyst Mark Palmer wrote in a Nov. 18 note to clients.

Palmer said recent developments supportive of the crypto space could encourage MicroStrategy to begin to generate yield by lending out a portion of its bitcoin holdings.

"The yield that MSTR could generate by lending a portion of its bitcoin holdings could offset the annual interest on its debt, and if the company were to become comfortable lending larger amounts, then it could use the associated yield as another means of adding to its holdings, one that would not involve any qualms about leverage or dilution," Palmer wrote.

Bernstein analysts said MicroStrategy is on track to acquire 4% of the world’s bitcoin by the end of 2033.

“MicroStrategy’s bitcoin treasury model is unprecedented on Wall Street, in our view,” they wrote in a Nov. 25 note to clients. “A company on an insatiable path to attract billions in global capital to invest in bitcoin.”