MicroStrategy Inc (MSTR, Financial) has experienced a notable 3-month gain of 23.45%, despite a daily loss of 4.93%. With an Earnings Per Share (EPS) of 1.29, investors are faced with the critical question: is the stock significantly overvalued? This article delves into the valuation of MicroStrategy, providing investors with a detailed analysis of the company's intrinsic value and market position. Keep reading to understand the factors that contribute to our valuation assessment.
Company Overview
MicroStrategy Inc is a prominent provider of enterprise analytics and mobility software. Its flagship MicroStrategy Analytics platform offers comprehensive reporting and dashboard capabilities, enabling users to analyze data and share insights via mobile or web interfaces. The company's financial performance is currently under the microscope, particularly when juxtaposing its stock price of $480 with the GuruFocus Fair Value (GF Value) of $298.74, suggesting a potential overvaluation. This juxtaposition sets the stage for an in-depth valuation analysis of MicroStrategy.
Understanding GF Value
The GF Value is a unique measure that determines the intrinsic value of a stock. It is calculated by considering historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and projected future business performance. The GF Value Line represents the fair value at which the stock should trade. When a stock's price significantly exceeds the GF Value Line, it may be overvalued, indicating potential poor future returns. Conversely, if the price is well below this line, it could suggest undervaluation and the possibility of higher future returns.
MicroStrategy (MSTR, Financial) is believed to be significantly overvalued according to the GF Value, with its current price of $480 per share towering above the estimated fair value of $298.74. This overvaluation implies that the long-term return on MicroStrategy's stock could be substantially lower than the company's future business growth.
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Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insight into financial stability. MicroStrategy's cash-to-debt ratio is a mere 0.02, ranking lower than 97.67% of peers in the Software industry. With a financial strength rating of 3 out of 10, the company's financial foundation is considered weak.
Profitability and Growth
Investing in profitable companies is generally less risky, especially for those with a history of consistent profitability. A high-profit margin often indicates better potential performance. MicroStrategy has been profitable for 7 out of the past 10 years, with revenues of $504.30 million and an Earnings Per Share (EPS) of $1.29 over the past 12 months. However, its operating margin of 1.64% is lower than 52.78% of competitors in the Software industry, leading to a fair profitability ranking.
Growth is also a critical component of valuation. The 3-year average annual revenue growth rate of MicroStrategy is -2.2%, which is below 74.44% of companies in the Software industry. However, its 3-year average EBITDA growth rate of 37% is commendable, surpassing 82.84% of its industry counterparts.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can reveal its profitability relative to the capital invested. When ROIC exceeds WACC, it suggests value creation for shareholders. MicroStrategy's ROIC is -0.09, significantly lower than its WACC of 21.19, indicating that the company might not be generating adequate cash flow relative to its capital costs.
Conclusion
In conclusion, MicroStrategy (MSTR, Financial) appears to be significantly overvalued based on its current market price. The company's financial condition is concerning, though its profitability is fair, and its growth is impressive within the Software industry. Investors seeking more information on MicroStrategy's financial history 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.
