MicroStrategy Inc (MSTR, Financial) has recently experienced a daily loss of 4.78%, yet it has gained 47.87% over the past three months. With an Earnings Per Share (EPS) of 1.29, investors are prompted to question whether the stock is significantly overvalued. This article delves into the intrinsic valuation of MicroStrategy (MSTR) to determine if its current market price justifies the underlying business performance and future prospects.
Understanding the valuation of MicroStrategy (MSTR, Financial) is crucial for investors seeking to make informed decisions. The following analysis will provide insights into the company's financial health, growth potential, and whether its stock is priced appropriately in the market.
Company Overview
MicroStrategy Inc is a leading provider of enterprise analytics and mobility software. The company's offerings include the MicroStrategy Analytics platform, MicroStrategy Server, and a suite of solutions that empower users to analyze data, share insights, and make informed decisions. Despite its robust software platform and services, the company's stock price of $495.38 stands in stark contrast to the fair value estimation of $294.08, as per the GF Value. This disparity sets the stage for a deeper evaluation of MicroStrategy's market valuation.
Understanding GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock by analyzing historical trading multiples, a GuruFocus adjustment factor based on past performance, and future business performance projections. The GF Value Line provides a visual representation of what a fair trading value for the stock should be.
MicroStrategy (MSTR, Financial)'s stock is currently flagged as significantly overvalued according to the GF Value, suggesting that its future returns may be less than stellar when compared to its business growth. The stock's fair value is influenced by historical trading metrics, internal adjustments reflecting past growth, and anticipated future business performance. At its current price, MicroStrategy (MSTR) appears to be priced well above its estimated fair value.
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Financial Strength Assessment
Assessing the financial strength of a company is vital before investing in its stock. MicroStrategy's financial strength is rated a modest 3 out of 10, with a cash-to-debt ratio of 0.02. This ratio is lower than 97.8% of companies in the Software industry, indicating that MicroStrategy's financial position is relatively weak, which could entail a higher risk of permanent loss for investors.
Profitability and Growth Prospects
Investing in profitable companies, especially those with consistent long-term profitability, generally carries less risk. MicroStrategy has been profitable for seven of the past ten years. With a revenue of $504.30 million and an Earnings Per Share (EPS) of $1.29 over the past twelve months, its operating margin of 1.64% ranks lower than more than half of its industry peers. The company's profitability score stands at 6 out of 10, signifying fair profitability.
Regarding growth, MicroStrategy's 3-year average annual revenue growth rate is -2.2%, which is below industry standards. However, the 3-year average EBITDA growth rate is an impressive 37%, outperforming 82.96% of its industry counterparts. This suggests that while revenue growth has been challenging, the company has managed to increase its earnings before interest, taxes, depreciation, and amortization at an impressive rate.
ROIC vs. WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. Ideally, the ROIC should exceed the WACC. MicroStrategy's ROIC of -0.09 and a WACC of 21.09 indicate that the company is not generating sufficient returns on its invested capital, which is a red flag for potential investors.
Final Thoughts
In conclusion, MicroStrategy (MSTR, Financial)'s stock appears to be significantly overvalued when considering its financial condition, profitability, and growth metrics. While the company shows strong EBITDA growth, its overall financial health and the discrepancy between its ROIC and WACC raise concerns. For those interested in a deeper dive into MicroStrategy's financials, a thorough examination of its 30-Year Financials is available here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
