Strategy (MSTR) has been one of the most talked-about Bitcoin proxy stocks on Wall Street. The stock has surged 143% over the past year, driven by Bitcoin’s rise, but Monness analyst Gus Gala believes the momentum may not last. In his new research note today, Gala reiterated a Sell rating and kept his $175 price target, which suggests about 50% downside from current levels. He warned that Strategy’s premium over its Bitcoin holdings has already come down sharply, with more room for it to shrink.
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Analyst Sees Room for More Downside Ahead
Gala noted that Strategy recently bought 525 more Bitcoins, lifting its total to 638,985 BTC. This purchase was funded through preferred share deals that raised about $68 million, rather than by selling new common stock as in past weeks. Still, Gala cautioned that using preferred shares and stock sales to pay debt interest will gradually reduce the value of existing shareholders’ holdings.
The analyst pointed out that Strategy’s funding approach continues to create risks for shareholders. Under its “42/42 Capital Plan,” the company has been relying more on issuing new shares, since traditional debt markets are still hard to access on favorable terms. In fact, nearly 90% of its recent fundraising has come through common stock, which increases dilution for existing investors and puts pressure on the company’s valuation.
Also, Gala cautioned that declining volatility has made Strategy’s convertible debt strategy less effective. He added that the rise of “copycat” firms using similar Bitcoin treasury models has also reduced the uniqueness of the company’s approach.
Valuation Pressure Likely to Persist
On the valuation front, Gala stressed that Strategy’s premium to its Bitcoin holdings is already shrinking and is likely to compress further. The stock’s multiple has already fallen to 1.3x, not far from the peer group median of 1.21x. With that premium no longer compelling, he expects this downward pressure on the multiple to persist, limiting upside for the shares.
Is MSTR Stock a Buy?
Strategy stock has a consensus Strong Buy rating among 13 Wall Street analysts. That rating is based on 12 Buy and one Sell recommendations assigned in the last three months. The average MSTR price target of $562.62 implies 71.64% upside from current levels.
