Short-Seller Chanos Continues War of Words with Saylor Over Strategy Stock’s (MSTR) Premium Valuation

The war of words between famous short-seller Jim Chanos and Strategy’s (MSTR) executive chairman, Michael Saylor, over the Bitcoin (BTC-USD) treasury company’s premium valuation continues. In an interview with Bloomberg TV, Chanos called Saylor a “wonderful salesman.” The short-seller believes that Strategy, previously known as MicroStrategy, should not be valued only on the basis of its Bitcoin Holdings.

Notably, Strategy has been accumulating Bitcoin by raising funds through equity or debt offerings to purchase the cryptocurrency. Interestingly, the company has shifted to selling preferred stock to fund its Bitcoin purchases, instead of convertible bonds or at-the-money (ATM) common stock sales.

The Debate Between Chanos and Saylor over MSTR’s Valuation

The debate between Chanos and Saylor was triggered when the former suggested that traders should short Strategy stock and purchase Bitcoin directly. Chanos explained that the premium enjoyed by MSTR stock over the value of Bitcoin holdings could narrow, presenting an opportunity for the arbitrage trade.  

Chanos thinks that Strategy’s market value should not be more than the value of its Bitcoin holdings. For context, as of June 9, the company held 582,000 Bitcoins, worth around $62.3 billion, while MSTR stock’s market value of $108 billion was over 1.7 times its crypto holdings. Chanos believes that this disconnect creates an arbitrage opportunity to buy the largest cryptocurrency and short MSTR stock.

However, Saylor disagrees with the short seller’s trading recommendation, saying, “I don’t think he understands what our business model is.” He highlighted that Strategy is the largest issuer of Bitcoin-backed credit instruments in the world. He added that Chanos still doesn’t understand that MSTR is an operating company and not a closed-end trust or a holding company. While trusts can’t leverage Bitcoin, issue preferred shares, and/or issue permanent shares, Strategy can do these. Chanos has previously called Saylor’s tactics “financial gibberish.”

Saylor cautioned that if MSTR stock trades at a weak premium, the company is going to sell the preferred stock and buyback common shares, and if the stock rallies, Chanos is “going to get liquidated and wiped out.”

Is MSTR Stock a Buy, Sell, or Hold?

Unlike Chanos, most Wall Street analysts are bullish on Strategy stock, with a Strong Buy consensus rating based on 12 Buys and one Sell recommendation. The average MSTR stock price target of $524.92 indicates 38.2% upside potential. MSTR stock has rallied 31% year-to-date.

Meanwhile, many companies, including GameStop (GME), are trying to replicate Strategy’s Bitcoin accumulation model. However, they are yet to achieve the kind of success that MSTR has.

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