Kerrisdale Capital recently released a report arguing that MicroStrategy’s shares have become significantly overvalued in comparison to the actual value of Bitcoin. The company pointed out that the premium at which MicroStrategy’s shares are trading, at over two and a half times the spot price of Bitcoin, is unjustified. In fact, Kerrisdale Capital believes that Bitcoin would need to be trading at $177,000 to justify the current premium on MicroStrategy’s shares.
Despite MicroStrategy’s software analytics division contributing only 3% to the overall value of the company, much of its Bitcoin acquisitions are financed through debt and equity offerings, essentially diluting shareholder value. Kerrisdale Capital notes that while there has been an increase in MicroStrategy’s Bitcoin holdings, the amount of BTC per share has remained relatively unchanged in recent years. This calls into question the actual value that the company’s Bitcoin strategy is providing to shareholders.
The premium at which MicroStrategy is currently trading, at 2.6x equity premium to Bitcoin, exceeds the historical average of 1.3x. This suggests that there may be an overvaluation of MicroStrategy’s shares in relation to the underlying asset, Bitcoin. Kerrisdale Capital highlights that this premium has only exceeded 2x on a small percentage of trading days since 2021, indicating a potential disconnect in the market’s valuation of the company.
While MicroStrategy was once seen as a primary route for Bitcoin investment, the increasing accessibility of cryptocurrencies through brokerages and low-fee investment options has reduced its appeal. This shift in the market dynamics could further impact the valuation of MicroStrategy’s shares, as investors have more options to directly invest in Bitcoin without the need for a proxy like MicroStrategy.
Overall, Kerrisdale Capital’s analysis raises legitimate concerns about the current valuation of MicroStrategy’s shares and the underlying factors that are driving this premium. As the market continues to evolve and investor preferences change, the future of MicroStrategy’s shares remains uncertain. Investors should carefully consider the risks associated with investing in a company that may be trading at an inflated premium relative to its underlying assets.