We came across a bearish thesis on MicroStrategy Incorporated (MSTR) on Monopolistic Investor’s Substack by Antoni Nabzdyk. In this article, we will summarize the bears’ thesis on MSTR. MicroStrategy Incorporated (MSTR)’s share was trading at $328.40 as of Jan 13th.
MicroStrategy, the largest corporate holder of Bitcoin, has made headlines for its significant cryptocurrency holdings, but its core business is centered around business intelligence software that leverages AI to help businesses analyze data. Despite its well-known customer base, including Visa and Amica, MicroStrategy holds a very small market share in the business intelligence space, making it a distant player compared to industry leaders.
Financially, MicroStrategy faces several challenges. Its efficiency metrics are concerning, showing that cash invested yields poor returns compared to competitors like Adobe, FICO, and Autodesk. The company’s profit margins are negative as well as the gross, operating, and net margins all paint a grim picture. The company’s financial health is strained, with a positive net equity but a debt burden that is difficult to ignore. MicroStrategy’s debt-to-equity ratio stands at 1.13, meaning for every $100 in equity, the company has borrowed $113. This level of debt is particularly alarming given the company’s ongoing losses.
Revenue growth has been consistently downward for MicroStrategy, and it has only posted profitability twice in recent history. This trend raises concerns for potential investors, signaling that the company is struggling to generate sustainable profits. Additionally, the company has been diluting shareholders through a negative buyback yield of -35.64%, and there are no dividends in sight. The company’s valuation also suggests it is overvalued, with a current price of $331.70 compared to an estimated fair value of $126.53, indicating an overvaluation of 162.1%.
Although MicroStrategy’s Bitcoin holdings could provide some value, they do not generate cash flow, and the company’s reliance on them for stability is risky. With negative margins, high debt, and poor revenue growth, MicroStrategy is struggling to remain profitable. The company is best considered a “hold” for current investors, and it is not recommended as a buy for those seeking long-term growth. The company’s financial metrics suggest it is heading toward financial instability, making it a risky investment at its current valuation.
MicroStrategy Incorporated (MSTR) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held MSTR at the end of the third quarter which was 26 in the previous quarter. While we acknowledge the risk and potential of MSTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.