Strategy Inc. (MSTR)

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

MSTR is a $3.8B company that provides analytics software services, and has mostly maintained its revenue levels over the years. It has been decently profitable over the years, and exhibited decent share price appreciation from post-dot com to ~2020. During 2020, the CEO implemented a 'bitcoin strategy' whereby the company would direct some of its free cash flows and debt issuance towards the purchase of bitcoin. The company's purchases were profitable for some time, and represented a large percentage of its market cap, causing the share price to largely reflect bitcoin's price. The company continues to purchase bitcoin with its free cash flow, however, this has materially slowed down.

It has 140K bitcoins, worth roughly ~$3.7B. Given this, its market cap is mostly its holdings in bitcoin, and on the optimistic side, if the price of bitcoin increases and its business becomes profitable again (therefore allowing it to purchase more bitcoin) its share price can increase from here. On the other hand, if bitcoin declines or stagnates, it has a high debt load that will require interest payments and its share price will fall. Much depends on the price of bitcoin for MSTR, and we believe if an investor is bullish on the price of bitcoin, we feel MSTR has upside potential, however, if one is less optimistic then it may not show much capital appreciation over the coming years.
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As they add Bitcoin to their balance sheet and increases the amount of Bitcoin per share Buy Bitcoin instead. You don't know what the CEO will do.

He wanted to have some exposure to bitcoin, because he has some concerns about the rapid expansion of central bank balance sheets leading to currency debasement. This company bought bitcoin with their balance sheet. Now they are issuing debentures and buying bitcoin with it. He has been trimming on the way up. The stock got way ahead of itself. He is playing entirely with house money and has his original investment out. He owns it to have a little exposure to bitcoin.

And would you buy Bitcoin? Speculative. The CEO have invested in Bitcoin until Bitcoin now makes up 50% of the company's market cap. MSTR is like an ETF of Bitcoin. He has pared his holdings as Bitcoin has risen. Interesting: MSTR tracks the price of Bitcoin when it rises, but goes down less when Bitcoin's price decreases. Caveat: Is this company double or triple what it was worth in October (the stock price has soared since October in tandem with Bitcoin). There's a disconnect in valuation, though he may add on weakness. He's waiting for their next report. No, he doesn't own Bitcoin directly, but he owns MSTR instead.

Bitcoin is volatile, but what it has is a fixed supply. Cash is generating a negative real rate of return, like a melting ice cube. This company bought bitcoin, and is a sneaky way to get exposure. Be aware that the risk has increased, price is going parabolic, so you may want to wait for a pullback. He stepped in with a 2% position. No dividend. (Analysts’ price target is $250.00)