MicroStrategy Inc (MSTR, Financial) recently saw a daily gain of 1.47%, and a 3-month gain of 0.31%. With an Earnings Per Share (EPS) of 8.99, the question arises - is the stock significantly overvalued? This article aims to provide a thorough analysis of MicroStrategy's valuation. We invite you to delve into the following sections for a comprehensive understanding of the company's financial health and intrinsic value.
A Snapshot of MicroStrategy Inc (MSTR, Financial)
MicroStrategy Inc is a leading provider of enterprise analytics and mobility software. The company's MicroStrategy Analytics platform delivers reports and dashboards, enabling users to conduct ad hoc analysis and share insights through mobile devices or the Web. Despite boasting a market capitalization of $4.70 billion and sales amounting to $500.20 million, the company's stock price of $333.11 is significantly higher than its fair value (GF Value) of $254.3. This discrepancy prompts a deeper exploration of the company's value.
Understanding the GF Value of MicroStrategy (MSTR, Financial)
The GF Value is a unique measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, the stock is likely overvalued, and its future return may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, with potentially higher future returns.
According to GuruFocus' valuation method, MicroStrategy's stock is significantly overvalued. This overvaluation implies that the long-term return of its stock is likely to be much lower than its future business growth.
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MicroStrategy's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing in its stock. A good starting point is the cash-to-debt ratio, which for MicroStrategy stands at 0.03, placing it below 97.13% of 2721 companies in the Software industry. GuruFocus ranks MicroStrategy's overall financial strength at 3 out of 10, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. MicroStrategy has been profitable 7 years over the past 10 years, with revenues of $500.20 million and Earnings Per Share (EPS) of $8.99 in the past 12 months. However, its operating margin of 1.35% is worse than 53.7% of 2756 companies in the Software industry. GuruFocus ranks MicroStrategy's profitability as fair.
Growth is a crucial factor in a company's valuation. MicroStrategy's 3-year average annual revenue growth is -2.2%, ranking it below 74.34% of 2397 companies in the Software industry. However, its 3-year average EBITDA growth rate is 37%, which ranks better than 82.6% of 1988 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, MicroStrategy's ROIC was -0.2, while its WACC came in at 19.29.
Conclusion
In conclusion, MicroStrategy's stock is significantly overvalued. The company's financial condition is poor, and its profitability is fair. However, its growth ranks better than 82.6% of 1988 companies in the Software industry. To learn more about MicroStrategy stock, you can check out its 30-Year Financials here.
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