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Financial services firm Canaccord Genuity on Monday adjusted its target price for MicroStrategy (NASDAQ:MSTR), reducing it from $2,047 to $1,826, while maintaining its buy rating.
Microstrategy stock is trading at $1,391 as of writing.
The report observed that MicroStrategy has been actively enhancing its Bitcoin holdings, significantly impacting its stock valuation. In mid-June, the company successfully priced a $700 million convertible note, due in 2032, with a 2.25% annual interest rate and a conversion price of $2,032. This move follows two oversubscribed offerings in May, Canaccord noted, illustrating robust investor confidence.
Currently, MicroStrategy holds approximately 226,311 BTC, valued at around $14.5 billion.
The company has strategically used its full capital structure, balancing equity and debt to fund its Bitcoin acquisitions. This approach has been accretive, Canaccord wrote, driving an equity value premium relative to its Bitcoin holdings. By the firm's analysis, this premium currently stands at about 88%, despite recent fluctuations in Bitcoin's spot price.
The report notes that the approval of Bitcoin spot ETFs initially caused some market dislocation, reducing MicroStrategy's premium to its Bitcoin holdings. However, the premium has rebounded, suggesting investor appreciation for the company’s strategic approach to Bitcoin accumulation.
The firm’s ability to maintain a premium despite increased competition from ETFs underscores its unique position in the market, Canaccord said.
"We believe BTC is biased higher given recent approvals of US BTC spot ETFs coming from heavyweight asset managers and the very strong adoption there, combined with the recent BTC halving that has constrained supply," wrote Canaccord Genuity analyst Joseph Vafi.
“Our new price target is derived by assuming 20% one-year appreciation to BTC versus current spot, a 15% increase in value to the software business, and our assumption that the current SOTP (sum-of-the-parts) premium remains intact,” the report continued.
However, the report cautions that this significant premium could contract, posing a risk to the stock's valuation.
“We note that since our last publish date (and last time we adjusted our price target), the price of Bitcoin has fallen by about 6% while the SOTP premium has decreased by 13%,” it added.
Canaccord warned that several risks could impact MicroStrategy’s stock price, including fluctuations in Bitcoin’s value, competition in the enterprise business intelligence market, and the success of new product launches. Additionally, regulatory changes and market sentiment towards cryptocurrencies could influence the company's performance.
Even so, the firm said Microstrategy remains a good investment.
"The valuation discussion around MSTR shares is, in our view, a unique one,” Vafi wrote. “Rarely does one see a software company where spot value and sentiment around investments held on the balance sheet is the primary driver of stock price."
Edited by Ryan Ozawa.