To The Moon

U.S. stocks rallied last Friday to close out a strong week on optimism over the health of the economy and path of interest rates as investors braced for a slew of policy changes under the incoming Trump administration. $.SPX(.SPX)$ and $.DJI(.DJI)$ registered their biggest weekly percentage gains since early November and the $.IXIC(.IXIC)$ recorded its best since early December. The best-performing concepts is Independent Crypto. Considering the different perceptions of the stock, this time TigerPicks chose $MicroStrategy(MSTR)$ to have a fundamental highlight to help users understand it better. $MicroStrategy(MSTR)$ MicroStrategy, Inc. engages in the provision of enterprise analytics and mobility software. It designs, develops, markets, and sells software platform through licensing arrangements and cloud-based subscriptions and related services. Its flagship platform, MicroStrategy 10, consists of the MicroStrategy Analytics, MicroStrategy Mobile, and Usher brands. MicroStrategy has come down around 15% in the last month, which is interesting when we consider that Bitcoin has only been down around 5%. Has MSTR lost its secret sauce? Is it still a better investment than Bitcoin? The recent dip certainly provides an enticing buying opportunity, and I do believe MSTR will outperform Bitcoin in the coming months. MSTR’s Big Bold Bet If we look at Bitcoin and MSTR’s performance over December, we can actually see a notable divergence. While MSTR fell over 21%, Bitcoin actually ended December almost flat. What’s the reason behind this? On December 23rd, MSTR filed form Pre-14A with the SEC, which outlines a plan to increase Class A common stock shares from 330 million to 10.33 billion. This may sound scary, and I believe many investors may misunderstand the implications. MSTR’s business model today relies on raising money and buying Bitcoin. It does this in two ways, and both ways require shares. Microstrategy funds its Bitcoin purchases through convertible bonds or share sales, but the company is almost tapped out. Including fully diluted shares, the company has around 280 million shares outstanding, leaving only around 50 million left before it reaches the 330 million limit. So, there are two issues here that may have, at least momentarily, broken the MSTR secret sauce, by which MSTR can acquire Bitcoin which is valued at a premium on its balance sheet. On one hand, there’s a degree of uncertainty here. Will this get approved? We’ll answer this below. More imminently though, it seems like some people are thinking this will be very dilutive, but that’s a misunderstanding. Firstly, dilution is precisely what you want in this business, and if you aren’t on board with it, then you shouldn’t be investing in this company. Secondly, just because MSTR raises potential shares to 10.3 billion doesn’t mean it will automatically use all of this new financing potential. It would be completely detrimental for the company to do this. If MSTR flooded the market today with 10 billion new shares, it could raise around $3.5 trillion, if the market could absorb them all at today’s price. Is this realistic? Of course not, this would crash the share price, and in turn hurt their convertible bond strategy and future financing potential. MSTR will gradually keep things going with its convertible bonds and ATM offerings to make the most out of its shares. Ultimately, it could even raise more than $3.5 trillion through the upcoming years. More likely, this is the kind of path we will see. MSTR Is The Better Bet Ultimately, I believe MSTR will continue to trade at a premium to Bitcoin, and in fact, there’s an argument to be made that MSTR will outperform the asset by a margin. The chart above shows the evolution of MSTR’s premium over the Bitcoin price. Warm colored dots represent the most recent data, while the cold and blue tonnes are the oldest data. We can see that the premium has fallen in the last few weeks, and it now stands a little below 2. At its peak, this measure was even above 3. This means we could see MSTR’s share price appreciation by at least 50% just due to this, taking the stock price back to new ATHs. Technical Analysis Based on TA, I think MSTR has room to go to $1000, at least. Looking at the chart, I’d argue there’s a good set-up here to go long. It seems like a wave iv consolidation could be complete and the MACD is flipping bullish. Now, I measured the rally all the way to wave iii from the bottom of wave iv. According to EW, a possible target for the wave v would be the 0.618 ext, which projects us just above $1000. After that, however, we could have completed an even larger impulse, meaning MSTR could be ready to pull back. Risks The risks with Microstrategy continue to be those I outlined in my last article. MSTR can’t afford a bear market. This could lead to further dilution, a loss of its current premium and even a Bitcoin discount. Though the company would survive, investors have to be aware that the downside could be substantial. Stock Price Forecast: Here are the target price forecasts for the next 12 months from analysts. Based on 8 Wall Street analysts offering 12 month price targets for Microstrategy in the last 3 months. The average price target is $529.57 with a high forecast of $650.00 and a low forecast of $312.00. The average price target represents a 33.56% change from the last price of $396.50. Resource: https://seekingalpha.com/article/4749999-microstrategy-trillion-dollar-bitcoin-bet-not-what-it-seems-upgrade Open a Cash Boost Account (CBA) today and unlock a trading limit of up to SGD 20,000! Enjoy the benefits of upcoming 0-commission, unlimited trading across Singapore, Hong Kong, and US stocks, as well as ETFs. Start trading smarter and more efficiently. Find out more here. How to open a CBA. 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