Amidst daily fluctuations and a notable 62.23% gain over the last three months, MicroStrategy Inc (MSTR, Financial) finds its Earnings Per Share (EPS) at $1.29. However, with a recent day's loss of -7.27%, investors are compelled to question if the stock is significantly overvalued. This analysis aims to explore MicroStrategy's valuation, providing a comprehensive look at its intrinsic value versus market price.
Company Introduction
MicroStrategy Inc (MSTR, Financial) is an established entity in the realm of enterprise analytics and mobility software. The company's flagship MicroStrategy Analytics platform facilitates insightful reporting and ad-hoc analysis accessible via mobile devices or the Web. With a stock price of $555.8 and a GF Value of $292.53, there is a compelling discrepancy that beckons a deeper examination into the company's valuation. Understanding this disparity is essential for investors considering the stock's potential for long-term growth.
Summarize GF Value
The GF Value is a distinctive measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. When a stock trades significantly above this value, as is the case with MicroStrategy (MSTR, Financial), it suggests an overvaluation that could lead to subpar future returns. Conversely, a price below the GF Value Line could indicate an undervalued stock with promising returns. Currently, MicroStrategy's market cap stands at $8.70 billion, which, according to the GF Value, points to a significant overvaluation.
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Financial Strength
Investors must scrutinize a company's financial strength to avoid potential capital loss. MicroStrategy's cash-to-debt ratio of 0.02 ranks lower than 97.78% of its industry peers, earning a financial strength rating of 3 out of 10 from GuruFocus. This suggests a concerning balance sheet that could impact investment decisions.
Profitability and Growth
Profitability is a cornerstone for assessing a company's risk profile. MicroStrategy has maintained profitability for 7 out of the past 10 years, with an operating margin that falls behind 52.46% of its industry counterparts. The company's growth, however, is more promising, outperforming 82.92% of the Software industry with a 3-year average EBITDA growth rate of 37%. This growth is a vital component of the company's valuation and potential to generate shareholder value.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) offers insight into a company's efficiency in generating returns on investment. MicroStrategy's ROIC of -0.09 is substantially lower than its WACC of 18.15, indicating the company may not be creating shareholder value effectively.
Conclusion
In summary, MicroStrategy (MSTR, Financial) appears significantly overvalued when considering its financial health and profitability. While the company's growth metrics are robust, they may not justify the current market valuation. Investors seeking to understand the full picture of MicroStrategy's financial landscape can refer to its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
