Is MicroStrategy A Buy?

🌟🌟🌟Bitcoin breached the USD 99,000 level for the first time on Thursday as investors have been bullish ever since Donald Trump won the US Presidential Election.  Bitcoin is now just a whisker away from the USD 100,000 level!  Microstrategy $MicroStrategy(MSTR)$  has benefited greatly as its share price is up a massive 479.8% year todate. 

MicroStrategy is a software company that is best known for its Bitcoin holding strategy and this strategy has paid off handsomely.  Its market capitalisation of USD 106 billion makes it one of America's largest companies.  From a market capitalisation of just USD 1 billion in 2011, it is certainly a remarkable turn of events for MicroStrategy. 

In August 2020, Founder and then CEO Michael Saylor announced that MicroStrategy had invested in Bitcoin as part of its new capital allocation strategy in order to maximise its long term value for its shareholders. 

Since then MicroStrategy has doubled, tripled and quadrupled down on Bitcoin, owning 252,220 Bitcoins as of September 30.  In addition to that MicroStrategy has acquired 27,200 more Bitcoins between October 31 and November 10 and issuing USD 2.6 billion in Zero percent convertible bonds this week to buy even more Bitcoins. 

Issuing Convertible Bonds to raise cash to buy more Bitcoin has been the key to Saylor's Bitcoin buying spree.  What is a convertible bond?  It is a type of bond that can be converted into a predetermined number of shares of the issuing company's stock at a future date.  There are a few benefits of using convertible bonds instead of normal bonds. 

Firstly the interest rates are typically lower, making the debt easier to service.  MicroStrategy 's most recent debt raise was at 0% interest.  This means that it does not have to make any interest payments to bondholders. 

Convertible bonds also minimises the cash outflow from the issuer if its stock price appreciates.    When Bitcoin' s price rises, the stock prices of crypto companies like MicroStrategy and Coinbase tend to rise too. 

As long as Bitcoin keeps going up, MicroStrategy's convertible debt which leads to more Bitcoin buying, amplifies that trend.  But if and when Bitcoin enters a Bear Market, MicroStrategy could have problems.   For example if an extended Bitcoin Bear Market was to drag MicroStrategy 's stock below its conversion prices, it would have to pay more than USD 4 billion to repay its convertible bondholders.   MicroStrategy might have to sell its Bitcoin to pay back bondholders.  This would further decrease Bitcoin' s price which would lead to selling more Bitcoin selling  to pay back its bondholders.   It is a downward spiral. 

So as long as Bitcoin prices keep going up, all is well for MicroStrategy.  Leverage works both ways and so far MicroStrategy has been winning. 

Is MicroStrategy A Buy? 

That depends on a person 's goals and risk appetite.   At the last closing price of USD 397.28, I believe $MicroStrategy(MSTR)$  is overvalued.  While I am Bullish on Bitcoin, I would prefer to invest in crypto miners like $Marathon Digital Holdings Inc(MARA)$  and $TeraWulf Inc.(WULF)$  which are the picks and shovels of the crypto industry. 

In investing, everybody's journey is different.  My goal is FIRE - Financial Independence Retire Early which I aim to achieve through buying undervalued companies to invest and collect dividends. 

@Daily_Discussion @TigerStars   @Tiger_comments  @MillionaireTiger  @CaptainTiger