Taking a closer look at MicroStrategy Inc (MSTR, Financial), we notice a significant daily gain of 6.41%, paired with an impressive three-month gain of 91.83%. With an Earnings Per Share (EPS) of 1.29, investors are prompted to question whether the stock is significantly overvalued. This article aims to delve into the valuation analysis of MicroStrategy, providing readers with a comprehensive understanding of the stock's intrinsic value.
Understanding MicroStrategy Inc (MSTR, Financial)
MicroStrategy Inc is a renowned provider of enterprise analytics and mobility software, offering a robust analytics platform for reporting, dashboards, and ad hoc analysis. With a current stock price of $619.24 and a market cap of $9.70 billion, the company stands as a significant player in the software industry. However, when we compare this to the GF Value of $290.99, it raises questions about the stock's fair valuation. This juxtaposition sets the stage for a deeper examination of MicroStrategy's market value, blending financial analysis with key company insights.
Deciphering the GF Value
The GF Value is a unique metric that determines the intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and projected future business performance. If a stock's price significantly exceeds the GF Value Line, it may indicate an overvalued status and potentially lower future returns. Conversely, a price well below the GF Value Line suggests potential undervaluation and higher future returns.
MicroStrategy (MSTR, Financial) is currently flagged as significantly overvalued by GuruFocus' valuation methods. The GF Value estimates fair value using historical multiples, internal adjustments based on past business growth, and analyst predictions for future business performance. With the stock trading at $619.24 per share, significantly above the GF Value Line, the long-term return of MicroStrategy's stock is likely to be much lower than its future business growth.
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Financial Strength and Stability
Before investing, assessing a company's financial strength is crucial. Companies with weak financials carry a higher risk of permanent loss. MicroStrategy's cash-to-debt ratio of 0.02 places it lower than 97.71% of its peers in the Software industry, indicating poor financial health. With an overall financial strength rating of 3 out of 10, MicroStrategy's financial position appears precarious.
Profitability and Growth Prospects
Investing in profitable companies, especially those with a track record of consistent profitability, tends to be less risky. MicroStrategy has managed to remain profitable 7 out of the past 10 years. In the last twelve months, the company reported revenues of $504.30 million and an Earnings Per Share (EPS) of $1.29. Despite an operating margin of 1.64%, which is below average for the industry, MicroStrategy's profitability score is a fair 6 out of 10.
Growth is a pivotal factor in valuation. MicroStrategy's 3-year average annual revenue growth rate of -2.2% is below industry standards, but its EBITDA growth rate of 37% ranks well above average, highlighting strong growth potential.
ROIC vs. WACC: A Key Indicator of Profitability
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to its capital costs. MicroStrategy's ROIC of -0.09 and WACC of 18 suggest that the company is not generating sufficient returns on its investments.
Conclusion: Evaluating MicroStrategy's Valuation
In summary, MicroStrategy (MSTR, Financial) is significantly overvalued according to current market metrics. The company's weak financial condition and fair profitability are concerns, but its growth outpaces more than 82% of its competitors in the Software industry. For a detailed analysis of MicroStrategy's financials, interested parties can explore its 30-Year Financials 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.
