On Tuesday, Benchmark initiated coverage on MicroStrategy (NASDAQ:MSTR), assigning a Buy rating to the company's shares with a price target of $990. The firm's analysis is based on a sum-of-the-parts valuation approach, which includes projections for the value of MicroStrategy's bitcoin holdings by the end of 2025 and the anticipated value of its business intelligence software operations at the same time.
MicroStrategy's unique business model is centered around the acquisition and holding of bitcoins, which form the majority of the company's valuation. The business intelligence software segment plays a supporting role, contributing stability to the valuation and generating cash flow that is used to purchase additional bitcoins.
The relationship between MicroStrategy's share price and the price of bitcoin is notably strong, with a correlation coefficient of 0.94. This indicates that the company's stock price movements are closely linked to those of the cryptocurrency. Benchmark's analysis suggests that the use of leverage by MicroStrategy to increase its bitcoin holdings could potentially amplify its gains compared to the returns of bitcoin itself.
The price target of $990 represents Benchmark's confidence in MicroStrategy's strategy and its ability to capitalize on its investments in bitcoin while maintaining a steady cash flow through its software business. The firm's valuation also reflects the expectation that MicroStrategy's approach will continue to be a significant driver of its share price in the future.
InvestingPro Insights
With Benchmark initiating coverage on MicroStrategy (NASDAQ:MSTR) and setting a bullish price target, investors are keen to understand the underlying metrics that could support such optimism. According to real-time data from InvestingPro, MicroStrategy's market capitalization stands at a robust $14.53 billion, reflecting the market's current valuation of the company's assets and business strategy. Notably, the company's P/E ratio is at 25.56, which, when compared to the adjusted P/E ratio for the last twelve months as of Q4 2023 at 36.85, suggests that the stock might be trading at a more attractive valuation relative to its near-term earnings growth.
InvestingPro Tips highlight that MicroStrategy has an impressive gross profit margin of 77.85%, which underscores the efficiency of its core business operations. Moreover, the company is trading at a P/E ratio that is low relative to its near-term earnings growth, potentially indicating an undervalued stock. This aligns with Benchmark's positive outlook, as the company's ability to sustain high profit margins while growing earnings can be a compelling reason for the Buy rating.
Investors should also note the significant return over the last week, with a 12.98% price total return, and an even more impressive 61.07% return over the last month. This momentum is indicative of strong investor confidence and market reaction to the company's strategy and performance. MicroStrategy's stock is also trading near its 52-week high, at 98.34% of the peak, suggesting that it is currently in favor with investors.
For those interested in a deeper dive into MicroStrategy's financials and future prospects, InvestingPro offers additional insights and tips. There are 19 more InvestingPro Tips available that can provide further guidance on the company's valuation, earnings, and stock performance. To access these tips and enhance your investment strategy, consider using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/MSTR.
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