MicroStrategy Inc (MSTR, Financial) recently experienced a daily gain of 4.86%, despite a 3-month loss of 27.87%. With an Earnings Per Share (EPS) (EPS) of 8.99, the question arises: Is the stock significantly overvalued? This article aims to provide a comprehensive valuation analysis of MicroStrategy, shedding light on its intrinsic value and financial performance. Read on for an in-depth exploration of the company's value.
Company Introduction
MicroStrategy Inc (MSTR, Financial) is a leading provider of enterprise analytics and mobility software. The company's MicroStrategy Analytics platform delivers reports and dashboards, enabling users to conduct ad hoc analysis and share insights through mobile devices or the Web. MicroStrategy Server provides analytical processing and job management. The company's primary operating segment is engaged in the design, development, marketing, and sales of its software platform through licensing arrangements and cloud-based subscriptions and related services.
As of October 16, 2023, the company's stock price stands at $333.68, significantly higher than its GF Value of $252.21. This discrepancy suggests that the stock might be overvalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
MicroStrategy (MSTR, Financial) appears to be significantly overvalued based on the GF Value calculation. With a market cap of $4.70 billion, the stock seems overpriced at its current price of $333.68 per share. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. MicroStrategy has a cash-to-debt ratio of 0.03, ranking worse than 96.96% of 2729 companies in the Software industry. Based on this, GuruFocus ranks MicroStrategy's financial strength as 3 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. MicroStrategy has been profitable 7 over the past 10 years, with a revenue of $500.20 million and Earnings Per Share (EPS) of $8.99 over the past twelve months. Its operating margin is 1.35%, ranking worse than 53.48% of 2760 companies in the Software industry. Overall, MicroStrategy's profitability is ranked 5 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. MicroStrategy's 3-year average annual revenue growth is -2.2%, ranking worse than 74.35% of 2394 companies in the Software industry. However, its 3-year average EBITDA growth rate is 37%, ranking better than 82.6% of 1988 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide valuable insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. MicroStrategy's ROIC is -0.2, while its WACC is 19.14.
Conclusion
Overall, MicroStrategy (MSTR, Financial) stock appears to be significantly overvalued. The company's financial condition is poor, and its profitability is fair. However, its growth ranks better than 82.6% of 1988 companies in the Software industry. To learn more about MicroStrategy stock, you can check out 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.
