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Stock Analysis & Ideas

Will Microstrategy’s Bet on Bitcoin Boost its Stock?

Microstrategy Inc. (MSTR) is a company that specializes in business intelligence, mobile applications, and cloud-based services.

Interestingly, the corporation is pursuing a Bitcoin acquisition strategy, because it believes the cryptocurrency may be used as a hedge against inflation.

Let’s take a look at the company’s financial performance and what has changed in its key risk factors. (See Microstrategy stock charts on TipRanks)

Microstrategy Financial Performance

Now let us dive into the company’s financial performance for the second quarter. The company delivered healthy financial performance, driven by operational excellence and digital asset strategy.

This helped the company register a 13.4% year-over-year jump in revenue to $125.4 billion.

Meanwhile, adjusted net income came in at $16.7 million or $1.72 per share versus $5.9 million or $0.60 per share in the year-ago quarter.

CEO of Microstrategy Michael J. Saylor said, “We continue to be pleased by the results of the implementation of our digital asset strategy. Our latest capital raise allowed us to expand our digital holdings, which now exceed 105,000 bitcoins.”

Smith further added, “Going forward, we intend to continue to deploy additional capital into our digital asset strategy.”

Microstrategy Risk Factors

According to the new Tipranks Risk Factors tool, Microstrategy’s main risk category is Finance & Corporate, which accounts for 47% of the total 49 risks identified.

Since June, Microstrategy has added nine new risk factors, removed three risks, and changed five risks factors.

The following are two of the risk factors that are likely to be of interest to investors:

Under the Finance & Corporate category, Microstrategy highlights that Bitcoin holdings make up the majority of the company’s assets. As a result, any large drop in the market value of the company’s Bitcoin assets could have a negative impact on its financials. Furthermore, this decline could cause the company to have liquidity and credit concerns, putting it at danger of defaulting on its debts.

Microstrategy introduced a new risk factor to the Legal & Regulatory category that warns investors about the elevated risk posed by the indemnification agreement with the company’s CEO, Michael J. Saylor. The company highlights that such an arrangement could have negative consequences on the market price of the company’s common stock.

It is also worthwhile noting that the Finance & Corporate risk factor’s sector average is 38.8%, compared to Microstrategy’s 46.9%.

Wall Street’s Take on MSTR

On TipRanks, MSTR has an analyst rating consensus of Moderate Buy, based on 3 Buy ratings, 1 Hold rating, and 1 Sell rating assigned in the last three months.

As for price targets, the average MSTR price target is $682.50, reflecting a potential 12-month upside of 2.8% from current levels. 

Bottom Line

MicroStrategy is up more than 300% year-over-year, and its exposure to Bitcoin is intriguing to many analysts and investors. Nonetheless, the stock price has been falling over the past week. Moreover, the stock’s TipRanks SmartScore, which comprises 8 unique data sets, indicates that the stock is likely to underperform the market. The 9 new risks the company has declared might be a cause for caution around this stock.

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