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MicroStrategy May Have Turned into a Growth Stock

This bearish sentiment that has been dragging technology stocks down for quite some time has left tech-focused investors wondering when it will finally end.

The answer is that as the factors that are now driving up the prices of fossil fuels and other commodities subside, enthusiasm for energy and resource stocks will wane. As a result, other stocks that are shelved today will thrive again tomorrow.

However, the technology sector has an opportunity to bounce back quickly once the cycle turns more favorable for it, as it is home to many good companies with tremendous growth potential.

One is MicroStrategy Incorporated (MSTR), a Virginia-based global provider of business analytics software and services. MicroStrategy has lost more than 10% since the beginning of the year.

On the one hand, that’s an unfair punishment for a stock that’s started showing some interesting business trends that the market would likely spot at other times. On the other hand, the market’s inability to deal fairly with this stock reflects an undervaluation that creates a buying opportunity.

Thus, I am bullish on this stock. 

Microstrategy’s Q4 2021

2021 was a year that MicroStrategy sees as transformative. Business software revenues are up for the first time in eight years, said Michael J. Saylor, CEO of MicroStrategy, on the company’s fourth-quarter 2021 financial results.

Had it not been for the general bearish sentiment among tech stocks, it would have played a role in the stock price, as revenue growth (2.4% year-over-year to $134.5 million), outperforming analysts’ estimates, led to a positive surprise on Wall Street.

However, that revenue growth is a positive sign for the company, as it really does look like a turning point. While the future seemed a little uncertain until a few quarters ago with few sales and the company unable to gain market share, the strong sales increase over the past two quarters could be the start of a long-term trend. In fact, MicroStrategy’s products are enjoying increasing market acceptance, the company noted.

This could mean that adjusted net income, which was a loss of -$8.41 per share in the fourth quarter of 2021, could be on track to turn positive.

Cross-market globalization is of remarkable help to MicroStrategy and other operators’ growth plans, as it creates endless opportunities through rapid expansion in the enterprise software segment.

The Context: A Measure of Its Size 

Globalization makes the business environment extremely competitive as their products or services have to compete even with those offered in markets thousands of kilometers away. In such a context, operational efficiency is fundamental, as any business activity must strive for maximum results while also using the minimum amount of resources.

Therefore, among other things, companies need a software application that allows managers and employees to quickly penetrate a large database, perform process analysis and draw conclusions that help make intelligent business decisions. 

Since entering profitable markets, gaining better cost control, or investing with high returns may also depend on business software, strong demand for this technology is expected in the years to come. 

The enterprise software segment is a fast-growing market with projected revenue growth of approximately 7.2% per year, a trend that will lead to ~$344 billion in revenue by 2027. This is a remarkable leap forward from 2022, when sales are estimated at around $243 billion, according to estimates by Statista.

Wall Street’s Take

In the past three months, four Wall Street analysts have issued a 12-month price target for MSTR. The company has a Strong Buy consensus rating based on three Buys, one Hold, and zero Sell ratings.

The average MicroStrategy price target is $690, implying a 40.1% upside potential.

MSTR Stock Statistics

Shares are changing hands at ~$492 as of the writing of this article, for a market cap of $5.5 billion and a 52-week range of $307.19 to $891.38. 

Compared to the midpoint of the 52-week range, which is $599.29, and the 200-day moving average of ~$590, the current stock price is much lower, which could serve as an additional reason for giving MSTR more room to run.

Conclusion

As the market’s attention returns to the technology sector, MicroStrategy, which finally appears to be on the right growth path, could take off easily.

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