Kerrisdale Capital recently released a report claiming that MicroStrategy’s shares are currently overvalued. They believe that MicroStrategy’s shares are trading at a premium to the actual spot price of Bitcoin, which the company views as unjustifiable. This assertion led to a significant 14% decrease in MicroStrategy’s shares following the report’s publication.
Analysis of the Premium
Kerrisdale Capital argues that the premium at which MicroStrategy’s shares are trading, at over two and a half times the price of Bitcoin, is not warranted. According to their analysis, Bitcoin would need to be trading at $177,000 to justify this premium. They believe that this overvaluation presents an opportunity for a pair trade, as they predict that the premium on MicroStrategy’s shares will likely decrease in the future.
Kerrisdale Capital also points out that MicroStrategy’s software analytics division contributes only 3% to the company’s overall value. They highlight that much of MicroStrategy’s Bitcoin acquisitions have been financed through debt and equity offerings, which has diluted shareholder value. Despite an increase in Bitcoin holdings, Kerrisdale notes that the amount of Bitcoin per share has remained relatively unchanged in recent years.
MicroStrategy currently trades at a 2.6x equity premium to Bitcoin, a significant increase from the historical average of 1.3x. Kerrisdale Capital emphasizes that this premium has only exceeded 2x on a minimal number of trading days since 2021, indicating a potential overvaluation of MicroStrategy’s shares.
Previously, MicroStrategy was viewed as a primary avenue for Bitcoin investment. However, with the increasing accessibility of cryptocurrencies through various platforms and low-fee investment options, its appeal has diminished. Despite MicroStrategy’s CEO Michael Saylor expressing confidence in the company’s prospects, Kerrisdale Capital remains skeptical about the current valuation of the company.
Kerrisdale Capital’s analysis raises significant concerns about the potential overvaluation of MicroStrategy’s shares. They argue that the premium at which the company’s shares are trading in relation to Bitcoin is unwarranted and represents an opportunity for a pair trade. With the evolving landscape of cryptocurrency investment, the future of MicroStrategy’s valuation remains uncertain. Investors should carefully consider these factors before making any investment decisions in the company.
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