MicroStrategy stock’s big premium to bitcoin holdings defended by analyst as ‘intelligent leverage’
2024-10-18

The growing premium at which business intelligence firm and corporate bitcoin holder MicroStrategy (ticker: MSTR) shares trade relative to their net asset value (NAV) is not something to fear, according to Benchmark.
Currently at 2.3x, the premium hit a three-year high of 2.7x earlier this month, sparking debates among observers who argued that the stock should align more closely with the company's bitcoin holdings. While such analysts agreed that MicroStrategy's share price benefits from bitcoin price appreciation, they saw the significant premium as unjustified.
However, Benchmark analyst Mark Palmer countered that view, highlighting the company’s strategy of using low-cost debt and equity dilution to increase its bitcoin holdings per share. This "flywheel" effect, the analyst said, makes MicroStrategy's valuation more than just a reflection of its NAV. The company’s ability to generate compounding yield on its bitcoin holdings — what management calls "intelligent leverage" — sets it apart from other bitcoin investments like ETFs, justifying the stock's premium.
As of Sept. 19, MicroStrategy holds 252,220 bitcoin worth roughly $15.8 billion. The company has continued to acquire bitcoin periodically over the last few years.
Palmer emphasized MicroStrategy's strong performance, citing its newly created BTC Yield metric, which measures the growth of its bitcoin holdings relative to its share count. The company has achieved a 17.8% yield year-to-date, far exceeding previous years. The analyst also pointed to MSTR's dramatic stock price outperformance since it adopted its bitcoin strategy, reinforcing confidence in the company's approach and raising its price target to $245.
Palmer noted the company’s share price has risen by 1,600% over the past four years, which exceeded the return of bitcoin by a factor of 3.8x as well the returns of the S&P 500 and the Nasdaq by 22x and 24x, respectively.
"MSTR by continuing to arbitrage between the U.S. capital markets and bitcoin and accreting bitcoin per share during what we anticipate will be a bull market for the cryptocurrency should be able to drive additional share price gains during the coming quarters, in our view," Palmer wrote in the note to clients on Friday.
Last month, Palmer said recent developments supportive of the crypto space could even encourage MicroStrategy to begin to generate yield by lending out a portion of its bitcoin holdings. MicroStrategy Executive Chairman Michael Saylor recently told Bernstein analysts the company's endgame is to be the leading bitcoin bank — ultimately growing to become a trillion-dollar company.
MicrosStrategy's stock is trading higher by more than 8% to $209.09 at publication time. Shares are up more than 200% in the year-to-date period.
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