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MicroStrategy (MSTR) Surges 15.9%: Is This an Indication of Further Gains?

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MicroStrategy (MSTR - Free Report) shares soared 15.9% in the last trading session to close at $598.49. The move was backed by solid volume with far more shares changing hands than in a normal session. This compares to the stock's 0.9% loss over the past four weeks.

The increase in share price can be attributed to the announcement of completion of senior notes offering worth $500 million by the company. The notes carry interest at an annual rate of 6.125% and are slated for maturity in 2028.

The net proceeds, after subtracting estimated offering expenses payable by the company and initial purchaser discounts & commissions, are expected to be around $488 million. The net proceeds are intended to be utilized for purchase of bitcoin.

On the same day, MicroStrategy also filed a Form S-3 Registration Statement with U.S. Securities and Exchange Commission (SEC)  that includes a prospectus that allows the company to offer, issue and sell up to $1 billion worth of class A shares of the company. The net proceeds will be utilized for general corporate purposes which also includes additional purchase of bitcoin, as noted in the SEC filing.

MicroStrategy has doubled down on increasing its bitcoin reserve. The company’s CEO Michael J. Saylor has constantly underscored that the company believes bitcoin can “serve as a dependable store of value.”

Further, the company believes that its strategy of acquiring more bitcoins is complementary to its enterprise analytics software business. The company is of the idea that its bitcoin related activities will put spotlight on its brand and in turn, attract new clients for its software business.

This business software company is expected to post quarterly earnings of $0.80 per share in its upcoming report, which represents a year-over-year change of +128.6%. Revenues are expected to be $119.95 million, up 8.5% from the year-ago quarter.

While earnings and revenue growth expectations are important in evaluating the potential strength in a stock, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For MicroStrategy, the consensus EPS estimate for the quarter has remained unchanged over the last 30 days. And a stock's price usually doesn't keep moving higher in the absence of any trend in earnings estimate revisions. So, make sure to keep an eye on MSTR going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank 3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

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