‘A Rally Leading to Nowhere,’ Says Analyst About Strategy (MSTR) Stock

Strategy’s (NASDAQ:MSTR) masterplan of scooping up as much Bitcoin as it possibly can has worked wonders for investors since it was put into action in August 2020. Since then, the shares have appreciated by a barely believable ~2870%.

While co-founder and executive chair Michael Saylor’s original idea might have raised plenty of eyebrows when he first set the company on its BTC-buying path, the gains speak for themselves and these days, MSTR shares get plenty of support on Wall Street.

But not everyone is convinced. Monness analyst Gus Galá strikes a rare negative tone when considering the company’s prospects.

“Recall,” says Galá, “we are bearish owing to our view of (i) little uptake of the BTC Treasury Strategy by bond markets and (ii) the concentration of folks pursuing these strategies: so far the roster includes cash burning legacy businesses like GameStop/MSTR, the BTC miners and new entities like Cantor emerging which sport even wider premiums to underlying – all of these compete for an ostensibly similar pool of capital.”

The analyst believes that recent “implied volatility” has significantly limited the effectiveness of MicroStrategy’s 21/21 Plan – a capital-raising strategy aiming to add $21 billion through equity and $21 billion through fixed-income instruments to fund further Bitcoin acquisitions. The plan has also been hampered by lack of interest in newer instruments like the preferred stock offerings STRK and STRF, which Galá thinks are designed to “supplant” the convertibles approach. Without reliable access to debt markets, these strategies increasingly rely on ongoing equity dilution and the assumption that Bitcoin’s price will continue to rise. At the same time, though still small, there’s a growing number of similar “copycat” strategies emerging.

“Fun math:” adds Galá, “if BTC rose to $215k today, that would make shares trade in line MSTR implied BTC price.”

Galá thinks the dearth of new convertible note, STRK, and STRF issuance is further evidence that Strategy’s funding runway may be narrowing. Over the past month, yield spreads have “meaningfully widened,” making future debt-based capital raises more costly. While Bitcoin’s price has held up well through the period, the relative stability actually undercuts the premise of “tapping volatility” that supports much of the BTC capital-raising strategy – a point Galá flagged earlier.

All that is to say, Galá maintained a Sell rating on the shares along with a $175 price target. That figure suggests the stock will fall by ~55% in the months ahead. (To watch Galá’s track record, click here)

That said, Galá is on his own here. All 13 other recent reviews are positive, making the consensus view a Strong Buy. The forecast calls for one-year gains of ~34%, given the average target clocks in at $508.21. (See MSTR stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.