Shares of MicroStrategy (NASDAQ: MSTR) saw a significant surge of 24.7% this week, as reported by S&P Global Market Intelligence. The rise in the company’s stock can be attributed to Bitcoin’s price surge and a new convertible debt offering with a 0% interest rate. As of Friday, November 22, MicroStrategy’s stock has increased by an impressive 515.7% year-to-date.
Here’s what’s behind the stock’s remarkable performance this week .
More Bitcoin Gains and New Debt Offering mstr stock
In 2020, MicroStrategy’s CEO Michael Saylor made a bold decision by converting the company’s balance sheet into Bitcoin. This risky move has paid off handsomely, as MicroStrategy continues to sell new shares and issue debt to fund additional Bitcoin purchases. As per the latest reports, the company now holds a staggering 279,420 Bitcoins.
This week, Bitcoin’s price appreciated by roughly 10%, which likely fueled investor optimism around MicroStrategy’s stock. But there was another factor that drew Wall Street’s attention: MicroStrategy successfully closed a $3 billion convertible note offering with a 0% interest rate, set to mature in 2029. A convertible note is a type of debt that can be exchanged for stock if certain conditions are met. MicroStrategy secured extremely favorable terms with this offering, as it carries no interest payments and the principal is due in 2029.
This arrangement allows the company to acquire more Bitcoin while paying back only the principal amount in 2029, unless the debt converts into shares if MicroStrategy’s stock price exceeds $672.40. Currently, the stock trades at $421.88 per share.
Is MicroStrategy Stock Worth Buying?
While securing 0% interest financing is advantageous, it doesn’t automatically make MicroStrategy a good choice for long-term investors. With a market cap of $86 billion, the company is currently valued at nearly three times the worth of its Bitcoin holdings, even with Bitcoin’s significant rise this year. Additionally, MicroStrategy’s software business is relatively small and doesn’t justify a large portion of its valuation.
In simple terms, investors interested in Bitcoin exposure through MicroStrategy are effectively paying three times the value of its Bitcoin. An alternative is to invest directly in Bitcoin itself, or, if one prefers to avoid the volatility of cryptocurrencies, simply refrain from investing in this high-risk asset class.
Prudent investors will likely avoid MicroStrategy at its current inflated valuation. If exposure to Bitcoin is the goal, it’s more straightforward to invest in Bitcoin directly.
Should You Invest $1,000 in MicroStrategy?
Before committing to MicroStrategy stock, consider this:
The Motley Fool’s Stock Advisor analysts recently identified 10 top stocks that they believe are strong buys at the moment — and MicroStrategy was not included. The stocks on their list have the potential to generate exceptional returns over time.
For perspective, when Nvidia was recommended in April 2005, a $1,000 investment would have grown to $869,885. With Stock Advisor’s guidance, investors can follow a clear strategy for building a successful portfolio, complete with stock recommendations and expert insights.