Analyst Downgrades MicroStrategy Amidst Bitcoin Buying Frenzy
MicroStrategy (MSTR) has experienced a staggering increase of over 2,500% in its stock value over the past five years, largely driven by the company’s aggressive investment strategy in Bitcoin (BTC). However, recent analysis suggests that this upward trajectory might soon face significant challenges. Analyst Gus Gala from Monness Crespi has downgraded MSTR from a neutral rating to a sell, citing concerns regarding the sustainability of its current financing strategy.
In his analysis, Gala stated, “While we were initially negative on several aspects upon starting our coverage, we have gained incremental confidence that the convertible issuance strategy is likely reaching its limit.” This downgrade comes only two weeks after Gala initiated coverage of MSTR at a neutral position, indicating a rapid shift in sentiment.
Currently, MicroStrategy boasts a substantial holding of 528,185 BTC on its balance sheet, and the company has been actively purchasing large quantities of Bitcoin nearly every week for the past few months. These acquisitions have primarily been financed through the issuance of common shares, in addition to sales from its initial preferred series, STRK.
Gala has set a price target of $220 for MSTR’s shares, implying a potential downside of nearly 30% from the current trading price, which hovers around the $300 mark. He emphasized that it will become increasingly challenging for MSTR to continue raising capital for Bitcoin purchases through share issuance, which may ultimately compel the company to explore fixed income alternatives.
“If fixed income securities do not become a larger component of their financing strategy, the viability of the BTC treasury approach will likely come under increasing scrutiny,” Gala warned. Notably, MSTR has already utilized $18.6 billion of its $21 billion common share at-the-market offering. Furthermore, the company recently raised an additional $711 million through its second series of preferred stock, STRF.
