MicroStrategy (MSTR) is the largest corporate holder of bitcoin, and has been adding more. Therefore, the stock’s price often moves with the price of the cryptocurrency. So, with bitcoin off recent highs and MicroStrategy stock falling below a closely watched moving average, is the stock a buy, sell or hold?
On Monday, MicroStrategy stock gave back around 4% in light volume.
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On Dec. 24, shares popped 7.8% on news MicroStrategy is seeking approval from shareholders to increase its shares outstanding to a whopping 10.33 billion shares from the current 330 million. The company filed a preliminary proxy with the Securities and Exchange Commission Dec. 23.
The additional common shares would allow it to raise more capital on top of its $42 billion capital plan, announced in October, the proceeds of which were used to buy bitcoin.
MicroStrategy is one of only a handful of Bitcoin Treasury Companies, meaning it uses the cryptocurrency as a treasury holding vs. traditional assets.
On Dec. 10, the company said it sold $2.1 billion of its shares over the prior week to buy more bitcoin. This comes after it reported on Dec. 1 it had added 15,400 bitcoins with a $1.5 billion price tag as part of its $13.5 billion bitcoin purchases since Oct. 31. The recent purchases boosted its holdings to 423,650 coins.
On Dec. 23, MicroStrategy was added to the Nasdaq 100.
Bitcoin’s recent price run began in November following Donald Trump’s presidential election win. Bitcoin prices broke the $100,000 milestone in early December, but have pulled back to about the $94,000 level.
Following the cryptocurrency’s climb, MicroStrategy stock also bolted to new highs in November, before weakening.
Backing From Trump
The president-elect is seen as cryptocurrency-friendly and vows to hold onto the country’s bitcoins. Currently, the U.S. government owns over 207,000 bitcoins, mostly seized from criminal activities. Trump even spoke at the largest bitcoin conference in July in Nashville, Tenn., claiming that America would be “the crypto capital of the planet and bitcoin superpower of the world.”
In its third-quarter earnings release on Oct. 30, the company announced its goal of raising $42 billion of capital over the next three years
Despite the connection to bitcoin, MicroStrategy is primarily a data analytics and security software provider. It uses artificial intelligence in its reporting tools, interactive dashboards and platform. It serves the retail, financial services, government and health care industries.
ETFs Spring Up Around MicroStrategy
MicroStrategy stock is showing up in more exchange traded funds with large weightings in crypto-focused funds.
MicroStrategy is the largest holding in the Bitwise Crypto Industry Innovators ETF (BITQ) at a 10.4% weighting, though the portion has dropped from its recent 17.5%. This fund corresponds to the Bitwise Crypto Innovators 30 Index. It is also the largest portion of the Schwab Crypto Thematic ETF (STCE).
New ETFs are also being created around the stock itself and its volatility. For instance, there are inverse, leveraged and option funds tied to the stock’s performance. Keep in mind, many of these are riskier to trade than regular ETFs.
On the bullish side are T-REX 2X Long MSTR Daily Target ETF (MSTU) and Defiance Daily Target 2X Long MSTR ETF (MSTX). Both are leveraged short-term products that strive for 200% of the daily price movement of MicroStrategy stock.
And on the bearish side are T-REX 2X Inverse MSTR Daily Target ETF (MSTZ) and Defiance Daily Target 2X Short MSTR ETF (SMST), which aim for daily results twice the inverse daily performance of MicroStrategy.
YieldMax MSTR Option Income Strategy ETF (MSTY) is an actively managed fund that seeks to generate monthly income by selling call options on MicroStrategy.
MicroStrategy Stock Follows Bitcoin Prices
MicroStrategy has been volatile since the election. The stock is extended from a long, late-stage irregular base with a 200 buy point.
The stock hit an all-time high Nov. 21, before reversing to close 16.2% lower the same day in heavy volume.
The stock has retreated around 42% from the high. After bouncing off the 10-week moving average the week ended Dec. 20, MicroStrategy sank more than 8% below the line Monday, triggering a sell signal.
MicroStrategy’s relative strength line is on a downtrend. The stock climbed 58% in November and around 394% so far this year, even with the recent pullback.
On Aug. 7, the stock had a 10-for-1 split.
MicroStrategy Losses Dwindle
The data analytics company reported its third-quarter results on Oct. 30. It posted a loss of $1.56 per share, mainly from fair market adjustments of its digital asset holdings.
But its Q3 revenue also suffered, with a 10% drop vs. the prior year’s quarter. The company’s sales have declined for six out of the last eight quarters.
Analysts expect continued — but narrower — losses over the next four quarters. Sales forecasts range from a 1% drop in the current quarter to modest increases of 1% to 3% the next three quarters.
Its Accumulation/Distribution Rating of A- indicates fairly heavy institutional buying over the last 13 weeks. Mutual funds have added shares for the last seven quarters.
Is MicroStrategy Stock A Buy, Sell Or Hold?
The bottom line: MicroStrategy triggered a sell signal, so it is currently not a new buy. It would be prudent to take some profits if you still had some from the October breakout at 200.
But investors could re-enter or add to a profitable existing position if the stock improves and bounces back above the 10-week line. Otherwise, investors should wait for a new base to form.
If you own it, as always, have your risk management strategy in place and be ready to sell if the stock goes 7% below your buy point.
Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks in addition to MicroStrategy.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
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