BTIG analyst Mark Palmer initiated coverage of Microstrategy Inc. on Thursday with a buy rating and a $850 price target.
Palmer, BTIG’s managing director and financial technology analyst, said that his valuation for the enterprise software and major crypto proponent is based on a sum-of-the-parts analysis of the company and a bullish outlook on bitcoin
with a price estimate of $95,000 by the end of 2022 for the world’s most popular digital asset.
“We fully acknowledge that MSTR, which last August became the first publicly traded U.S. company to adopt bitcoin as a Treasury reserve asset, has taken a massive unhedged long position on a highly volatile speculative asset,” Palmer writes.
“As such, we believe who invests in the stock should do so understanding that their investment is highly correlated with the price of bitcoin,” the analyst said.
MicroStrategy, co-founded in 1989 by Michael Saylor, its current and only CEO, has been among the vanguard of companies that are replacing traditional assets on their balance sheet, typically Treasurys, in favor of bitcoin. Tesla Inc.
recently announced that it was buying $1.5 billion in bitcoin on its balance sheet.
BTIG estimates that Microstrategy owned 91,326 in bitcoin that it acquired for $2.21 billion at an average price of $24,214.
At last check, bitcoin was changing hands at around $59,000, up 104% so far this year. That means that MicroStrategy’s stake is worth approximately $5.4 billion, which is nearly 80% of its current market value at around $6.84 billion.
MicroStrategy’s performance has become increasingly aligned with bitcoin as a result. Many investors purchase MicroStrategy with at least an eye toward gaining some exposure to bitcoin.
Shares of the company are up 84% in the year to date. Compared with a 8.2% gain for the Dow Jones Industrial Average
so far this year, a return of 6.7% for the S&P 500 index
and a 4.3% return in the Nasdaq Composite
over the same period.
On a 12-month basis, MicroStrategy’s gains are even more dramatic, up 530%, compared with a 58% gain for the Dow, 62% rise for the S&P and a nearly 83% advance for the Nasdaq. bitcoin is up 573% over the past year.
It is worth noting, however, that because of the way accounting rules work for intangible assets, MicroStrategy cannot recognize the gains on its bitcoin investment unless it sells the cypto. By contrast, it will have to record losses if the bitcoin’s value falls beneath its average purchase price, even if it doesn’t realize those losses by selling.
On top of its crypto stake, Palmer writes that BTIG is upbeat on MicroStrategy’s fundamental software business.
“While most of the attention paid to MSTR has been focused on its adoption of bitcoin as its primary treasury asset, we believe the company offers an attractive business analytics software play, especially as the company executes a shift from a product license model to a cloud-first, [software as a service] subscription model featuring mobile offerings,” he wrote.
BTIG’s target for MicroStrategy is about 20% from its current trading level at around $715, as of midday Thursday.