A Look At MicroStrategy (MSTR) Valuation After MSCI Index Relief And Further Bitcoin Buying

Strategy (MSTR) has been in focus after MSCI kept Bitcoin heavy firms in its flagship indexes, which eased concerns about forced selling, while the company continued adding to its Bitcoin holdings despite large unrealized losses.

See our latest analysis for Strategy.

At a share price of US$157.33, Strategy’s recent moves around MSCI’s index decision and fresh Bitcoin purchases sit against a sharp 90 day share price return decline of 50.13% and a very large 3 year total shareholder return of about 7x, indicating that longer term momentum has been strong even as shorter term sentiment has cooled.

If you are weighing concentrated Bitcoin exposure against other themes, it may be a useful point in time to see what is happening across high growth tech and AI stocks.

With the share price under pressure over the past year but a very large multi year return behind it, the real question now is whether Strategy’s Bitcoin heavy story is on sale or whether the market is already pricing in future growth.

Price to Earnings of 6.2x: Is it justified?

At a last close of US$157.33, Strategy is trading on a P/E of 6.2x, which screens as low compared both to peers and to the wider US market.

The P/E multiple reflects how much investors are paying today for each dollar of current earnings. It is a quick way to compare earnings pricing across software and fintech names that are already profitable.

For Strategy, earnings are forecast to grow 36.6% per year. The company has only recently become profitable and carries a high level of non cash earnings, so the current low P/E raises the question of whether the market is applying a wide discount to those forecasts or taking a cautious view on the quality and sustainability of profits. Compared to an estimated fair P/E of 56.3x, the gap is very wide and highlights how far sentiment could move if investors started to value earnings closer to that fair ratio level.

Against the US Software industry average P/E of 32.7x and a peer average of 57x, Strategy’s 6.2x multiple is far lower. This indicates that its earnings are currently priced well below many software peers despite the stronger earnings growth forecasts relative to the US market.

Explore the SWS fair ratio for Strategy

Result: Price to Earnings of 6.2x (UNDERVALUED)

However, you also have to weigh the heavy Bitcoin exposure and the recent 1-year total return decline of 52.02% as potential pressure points for this story.

Find out about the key risks to this Strategy narrative.

Build Your Own Strategy Narrative

If you look at the numbers and reach a different conclusion, or just want to test your own view, you can quickly build a custom thesis using Do it your way.

A great starting point for your Strategy research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If you stop at just one stock, you could miss other angles entirely. Give yourself options and see what else fits your style and risk tolerance.

• Spot potential value gaps by checking out these 882 undervalued stocks based on cash flows that may be pricing cash flows differently to what you expect.
• Back bold technology themes by scanning these 28 AI penny stocks that connect real businesses to the AI story you care about.
• Turn small price tags into a focused watchlist by reviewing these 3539 penny stocks with strong financials that still meet your financial quality standards.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com