According to data from MSTR-Tracker, as of October 14, the net asset value (NAV) of MicroStrategy (stock code: MSTR), a listed company that holds the largest number of Bitcoins (BTC) in the world, is compared to the NAV of its Bitcoin holdings. The premium has increased to its highest level in three years, reaching about 270%.
MicroStrategy stock net asset value (NAV) premium to its Bitcoin holdings, source: MSTR-Tracker.com
The NAV premium is calculated by dividing MSTR's market capitalization by the value of its Bitcoin holdings, so a higher NAV suggests that holding MSTR's stock earns investors 2.7 times more than holding Bitcoin directly.
premium factor
Key factors explaining why MicroStrategy's stock trades at a premium relative to its Bitcoin holdings include its leverage strategy, as well as its free cash flow from its software business.
Micro-strategies use leverage—through financial instruments such as on-market equity offerings (ATMs) and convertible senior bonds—to amplify their Bitcoin holdings. MicroStrategy held about $3.91 billion in long-term debt and had a market capitalization of $35 billion as of Oct. 14, suggesting a leverage ratio of 1.1x on its assets relative to its equity.
Assuming that the value of Bitcoin increases by 10%, without leverage, the value of MicroStrategy's Bitcoin holdings will also increase by 10%, as will its share price, but because MSTR uses debt, the company can control more than it would with just its own funds. (Stake) More Bitcoin. So when Bitcoin rises 10%, the company's total asset value increases by more, about 11% instead of 10%, suggesting that MSTR's NAV premium comes from leverage.
The premium for#Microstrategyshares is ~2.7x right nowI want to explain what this means in very simple terms:Every time $MSTR issues NEW shares, investors buy those shares and give MSTR 2.7x the value of what they're getting in returnMSTR receives 2.7#Bitcoinworth of… https://t.co/zZqwtCxwaS
— Rajat Soni, CFA (@rajatsonifnance) October 13, 2024
MicroStrategy's software business, while often overlooked, generated revenue of about $111 million in the second quarter and steady growth in subscription revenue, which provides a cash flow base to pay down debt and maintain its Bitcoin acquisition strategy.
Key indicators of micro-strategy profit in the second quarter, source: Bloomberg
In addition, the market has full confidence in MicroStrategy CEO Michael Saylor’s aggressive BTC acquisition strategy. Since adopting Bitcoin as a primary financial asset in August 2020, MSTR has consistently outperformed Bitcoin and most traditional stocks.
Since buying its first Bitcoin, MSTR has gained about 1,700%, compared to Bitcoin’s return of only about 500% during the same period. Analyst Maartunn describes microstrategy stocks as like Bitcoin on steroids.
The MicroStrategy stock is like Bitcoin on steroids pic.twitter.com/HBjPUc6Urd
— Maartunn (@JA_Maartun) October 13, 2024
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