BTIG analyst Mark Palmer began hedging Microstrategy Inc. on Thursday with a buy rating and a price target of $ 850. Palmer, managing director and financial technology analyst at BTIG, said his valuation of business software and leading cryptocurrency advocate is based on a sum-of-the-parts analysis of the company and a bullish outlook on bitcoin BTCUSD, -0.26 %, with an estimated price of $ 95,000 by the end of 2022 for the world’s most popular digital asset.
“We fully recognize that MSTR, which last August became the first publicly traded US company to adopt bitcoin as a Treasury reserve asset, has taken a massive unhedged long position in a highly volatile speculative asset,” writes Palmer. “As such, we believe that whoever invests in stocks should do so with the understanding that their investment is highly correlated with the price of bitcoin,” said the analyst. MicroStrategy, co-founded in 1989 by Michael Saylor, its current and sole CEO, has been among the forefront of companies that are replacing traditional assets on their balance sheet, typically Treasurys, in favor of bitcoin. Tesla Inc. TSLA, + 0.81% recently announced that it was buying $ 1.5 billion worth of bitcoins on its balance sheet. BTIG estimates that Microstrategy owned 91,326 in bitcoins which it acquired for $ 2.21 billion at an average price of $ 24,214. At the last check, bitcoin was changing hands at around $ 59,000, up 104% so far this year. That means MicroStrategy’s stake is worth about $ 5.4 billion, which is almost 80% of its current market value at about $ 6.84 billion. As a result, MicroStrategy’s performance has become increasingly aligned with bitcoin. Many investors buy MicroStrategy with at least one eye on gaining some exposure to bitcoin. The company’s shares are up 84% so far this year. Compared to an 8.2% gain for the Dow Jones Industrial Average DJIA, + 0.48% year to date, a 6.7% return for the S&P 500 SPX Index, + 0.97% and a 4.3% return on the Nasdaq Composite COMP, +1.52% over the same period. On a 12-month basis, MicroStrategy’s earnings are even more dramatic, up 530%, compared to a 58% gain for the Dow, a 62% increase for the S&P, and a nearly 83% advance for the Nasdaq. bitcoin is up 573% over the past year. However, it is worth noting that due to the way the accounting rules for intangible assets work, MicroStrategy cannot recognize the returns on your bitcoin investment unless you sell the crypto. On the contrary, you will have to record losses if the value of bitcoin falls below its average purchase price, even if you do not realize those losses by selling. In addition to its involvement in cryptocurrencies, Palmer writes that BTIG is bullish on MicroStrategy’s foundational software business. “While most of the attention given to MSTR has been on its adoption of bitcoin as its main treasury asset, we believe the company offers an attractive set of business analysis software, especially when the company executes a change of a product licensing model to a cloud. -first, [software as a service] subscription model with mobile offers, ”he wrote. BTIG’s target for MicroStrategy is roughly 20% from its current trading level at around $ 715, as of noon Thursday.