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Bull Of The Day: MicroStrategy (MSTR)

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MicroStrategy made a big bet on Bitcoin (BTC) this year, and it turns out it may have been the best decision this company's management has ever made. MicroStrategy is a cloud-based business analytics company that has stayed below investors' radars with quarterly income statements that weren't exciting anyone. CEO Michael Saylor flipped the narrative when it started purchasing Bitcoin in August.

With its enormous bitcoin purchase and a sales outlook that is looking a whole lot brighter as its licensing and subscription-based sales soars, analysts are increasingly optimistic about the future of this business, pushing MSTR into a Zacks Rank #1 (Strong Buy).

The Gold Rush in Bitcoin

MicroStrategy became the largest American corporation to invest in bitcoin as a 'store of value' when it purchased 38,250 coins between August and September for an average price of $11,111 per coin ($425 million in value), giving it the institutional seal of approval. Now fintech giants like Square (SQ - Free Report) and PayPal (PYPL - Free Report) are buying up large sums of the pioneering blockchain currency.

This big institutional bid has Bitcoin soaring in the past few months. BTC was trading below $10,000 as recent as September, a price it has struggled to stay above since the end of the Crypto-Craze in the first months of 2018. Bitcoin hit resistance at its 2017 high this week and pulled back to below $17, but I don't believe this rally is over. 

MicroStrategy has already netted a $286 million (68%) gain on its Bitcoin purchase in just three months, and it looks like the cryptocurrency is headed beyond $20k. I expect that more and more institutions will follow suit, adding to Bitcoins already red-hot momentum.

Saylor made a seemingly savvy business decision when he decided to store his enterprise's liquid capital in Bitcoin. He made this judgment call in the face of ultra-low interest rates that were poised to eat away at MicroStrategy's cash reserve value. Jerome Powell and the Federal Reserve are printing money like there's no tomorrow and vowing to let inflation run past its 2% target to make up for the past two decades of below-target inflation.

MicroStrategy's management team felt that gold is an antiqued store of value and that Bitcoin's blockchain-driven cryptocurrency is the future of inflation-protected assets.

The world of finance is shifting rapidly, and MicroStrategy is leading the shift towards blockchain-powered balance sheet management. Today roughly 1/3rd of MSTR's market value is derived from Bitcoin, and its share price changes have been highly correlated with BTC's price action.

I see MSTR as a hedged way to invest in the resurgence of the Crypto-Craze that I expect to continue into next year.

The Story

MicroStrategy was an unfortunate product of the late '90's tech bubble. MSTR surged over 3300% from May of 1999 to its high in early March of 2000, topping out at $3330. A year and a half later, MSTR was trading in the single digits, having lost over 99% of its peak value.

The company has been chugging along with little growth, but it appears that MicroStrategy is finally turning the heaters back on, resurging this digitally incepted enterprise back into growth. The shrewd Bitcoin purchase was just one lever exemplifying MSTR's growth potential. The business's newly released HyperIntellegence platform has been met with strong demand, and its other segments are all enjoying 2020's digital tailwind with the rapid adaptation of MicroStrategy's cloud technology. I expect that the business's resurgence into growth will continue throughout the digitally-driven Roaring 20s.

Final Thoughts

If you want to invest in the second wave of Bitcoin mania, MSTR is an excellent (hedged) way to do so. Keep in mind that these shares will still be quite correlated with BTC's highly volatile price. I would not recommend a large position in this enterprise, but it is one that is worth looking into.

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