BUSINESS
MicroStrategy Incorporated provides enterprise analytics software and services worldwide. It offers MicroStrategy, an enterprise platform, which provides a modern analytics experience by delivering insights across multiple devices to users via hyperintelligence products, visualization and reporting capabilities, mobility features, and custom applications developed on the platform; analysts and data scientists with seamless access to trusted, governed data directly within their tools; and APIs and gateways, multiple deployment options, enterprise semantic graph, scalability, and security. The company also provides MicroStrategy Support that helps customers to achieve their system availability and uptime goals, and to improve the overall experience through highly responsive troubleshooting and proactive technical product support.
INVESTMENT RATING
MSTR’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
MicroStrategy has a current Value Trend Rating of C (Neutral).
The Value Trend Rating reflects very contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. MicroStrategy has a very low Appreciation Score of 13 but a very high Power Rating of 89, and the Neutral Value Trend Rating results.
MicroStrategy’s stock is selling significantly above targeted value. The current stock price of $796.48 compares to targeted value 12 months forward of $305.
MicroStrategy’s very low appreciation potential results in an appreciation score of 13 (87% of the universe has greater appreciation potential.)
MicroStrategy has a Power Rating of 89. (MSTR’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 11% of companies in the universe.)
Contributing to this very high Power Rating: recent price action has been extremely favorable. Offsetting factors are the Prepackaged Software comparison group is in a slightly weakened position currently; and MSTR’s earnings estimates have fallen very significantly in recent months.
INVESTMENT PROFILE
MSTR’s financial strength is high. Financial strength rating is 73.
Relative to the S&P 500 Composite, MicroStrategy Inc has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that MSTR is higher risk. Relative weaknesses include: low forecasted profitability, low historical profitability, high stock price volatility, and high earnings variability. MSTR’s valuation is high: low dividend yield, high P/E ratio, and moderate price/book ratio. MSTR has unusually low market capitalization.
CURRENT SIGNALS
MicroStrategy’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
MicroStrategy’s current technical position is very strong. The stock price is in a 0.9 month up move. The stock has appreciated 45.4% from its prior low. The stock price is above its 200 day moving average which is in an uptrend. MicroStrategy’s stock price rise is extreme and the stock is possibly vulnerable.
ALERTS
MicroStrategy Inc (NASDAQ: MSTR). Important negative changes in investment behavior have recently occurred: negative upside/downside volume developed.
Important negative changes in MicroStrategy Inc (NASDAQ: MSTR) fundamentals have recently occurred: the consensus estimate for December, 2024 decreased significantly, and the consensus estimate for December, 2025 decreased significantly.
In light of this we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
MicroStrategy Inc (NASDAQ: MSTR) stock enjoyed a major increase of 15.9% on 2/26/24. The shares closed at $796.48. Moreover, trading volume in this advance was unusually high at 159% of normal. The stock has been exceptionally strong relative to the market over the last nine months and has risen 10.9% during the last week.
CASH FLOW
In 2023, MicroStrategy experienced a decrease in cash of -$2.19 million (-4%). Sources of cash were very modestly less than uses. Cash generated from 2023 EBITDA totaled +$7.20 million. Non-operating uses consumed -$76.37 million (-1060% of EBITDA). Cash taxes contributed +$553.80 million (+7687% of EBITDA). Re-investment in the business amounted to -$2,354.58 million (-32684% of EBITDA). On a net basis, debt investors pulled out -$251.23 million (-3487% of EBITDA) while equity investors supplied +$2,118.97 million (+29414% of EBITDA).
MicroStrategy’s Non-operating Income, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Microstrategy Peer Group. In most years, MicroStrategy was in the lower quartile and top quartile. Currently, MicroStrategy is lower quartile at -1060% of EBITDA (-$76.37 million).
MicroStrategy’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Microstrategy Peer Group. In most years, MicroStrategy was in the top quartile and lower quartile. Currently, MicroStrategy is upper quartile at +7687% of EBITDA (+$553.80 million).
MicroStrategy’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Microstrategy Peer Group. (Since 2021 Business Re-investment, %EBITDA has decelerated very sharply.) In most years, MicroStrategy was in the lower quartile and top quartile. Currently, MicroStrategy is lower quartile at -32684% of EBITDA (-$2,354.58 million).
MicroStrategy’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Microstrategy Peer Group. (Since 2021 Debt Investors, %EBITDA has accelerated very sharply.) In most years, MicroStrategy was in the second quartile and top quartile. Currently, MicroStrategy is lower quartile at -3487% of EBITDA (-$251.23 million).
MicroStrategy’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by an opposite trend for the Microstrategy Peer Group. In most years, MicroStrategy was in the top quartile and second quartile. Currently, MicroStrategy is upper quartile at +29414% of EBITDA (+$2,118.97 million).
MicroStrategy’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Microstrategy Peer Group. In most years, MicroStrategy was in the third quartile and top quartile. Currently, MicroStrategy is below median at -30% of EBITDA (-$2.19 million).
MicroStrategy’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Microstrategy Peer Group. (Since 2017 Cash, %Revenue has accelerated very sharply.) In most years, MicroStrategy was in the top quartile and second quartile. Currently, MicroStrategy is slightly above median at +10%.
PROFITABILITY
MicroStrategy’s return on equity has eroded significantly since 2014. The current level of 19.8% is 12.77X the low for the period and is -14.8% from the high.
MicroStrategy’s very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors is a significant analytical factor.
The productivity of MicroStrategy’s assets declined over the full period 2014-2023: asset turnover has suffered a very strong overall downtrend.
MicroStrategy’s pretax margin experienced a very strong overall downtrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
MicroStrategy’s return on equity is at the upper quartile (19.8%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is substantially below median (-2.6%) reflecting asset turnover that is lower quartile (0.10X) and lower quartile pretax margin (-25.1%).
Tax “keep” rate (income tax management) is lower quartile (-344.%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is at median (2.20X).
GROWTH RATES
There are no significant differences between MicroStrategy’s longer term growth and growth in recent years.
MicroStrategy’s historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been -4.1% per year.
Total asset growth has been 22.2% per year.
Annual E.P.S. growth has been 13.1% per year.
Equity growth has been 15.0% per year.
No consensus growth rate forecast is available for MicroStrategy.
Relative to the Microstrategy Peer Group, MicroStrategy’s historical growth measures are erratic. Equity growth (15.0%) has been upper quartile. Total asset growth (22.2%) has been upper quartile. E.P.S. growth (13.1%) has been substantially above median. Revenue growth (-4.1%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, MicroStrategy’s stock price performance has been volatile and exceptional. Between April, 2013 and February, 2024, MicroStrategy’s stock price rose +783%; relative to the market, this was a +178% gain. Significant price moves during the period: 1) December, 2022 – July, 2023: +209%; 2) March, 2022 – June, 2022: -66%; 3) March, 2020 – February, 2021: +535%; and 4) June, 2013 – July, 2015: +134%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 99.1% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of 99.1% is upper quartile relative to MicroStrategy Inc Peer Group.
Current 5-year total return performance of 31.6% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 31.6% relative to S&P 500 Composite, MicroStrategy’s total return performance is upper quartile relative to MicroStrategy Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MSTR’s overall valuation is high. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is at the upper quartile. Price/equity ratio is above median. Price/earnings ratio is above median. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to MicroStrategy Peer Group, MSTR’s overall valuation is quite high. Ratio of enterprise value/revenue is upper quartile. Price/equity ratio is upper quartile. Ratio of enterprise value/assets is upper quartile. Price/earnings ratio is slightly above median. Ratio of enterprise value/earnings before interest and taxes is unavailable.
MicroStrategy has a major value gap compared to the median valuation. For MSTR to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 28.62X to 1.82X. If MSTR’s ratio of enterprise value/revenue were to fall to 1.82X, its stock price would be lower by $-887 to $-90.
For MSTR to fall to lower quartile valuation relative to the MicroStrategy Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 28.62X to 0.98X. If MSTR’s ratio of enterprise value/revenue were to fall to 0.98X, its stock price would decline by $-914 from the current level of $796.
VALUE TARGETS
MSTR’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
MicroStrategy’s current Price Target of $353 represents a -56% change from the current price of $796.48.
MicroStrategy’s very low appreciation potential results in an appreciation score of 13 (87% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 13, the high Power Rating of 89 results in an Value Trend Rating of C.
MicroStrategy’s current Price Target is $353 (-37% from the 2023 Target of $563 and -56% from the 02/26/24 price of $796.48). This dramatic fall in the Target is the result of a -12% decrease in the equity base and a -29% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a huge positive impact.
PTR’s return on equity forecast is 4.0% — significantly below our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly below the 2016 peak of 18%.
PTR’s growth forecast is 17.0% — slightly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2020 low of 5%.
PTR’s cost of equity forecast is 2.8% — below recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is well below the 2016 peak of 10.2%.
At MicroStrategy’s current price of $796.48, investors are placing a positive value of $906 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 20.0% per year, and a return on equity of 17.9% versus a cost of equity of 11.0%.
PTR’s 2025 Price Target of $353 is based on these forecasts and reflects an estimated value of existing assets of $644 and a value of future investments of $-291.
Be the first to comment