MicroStrategy Inc (MSTR, Financial), a leading provider of enterprise analytics and mobility software, has been experiencing notable market movements. Despite a daily loss of 2.57%, the stock has gained 22.82% in the last three months. With an Earnings Per Share (EPS) of 8.99, the question arises: is the stock significantly overvalued? This article delves into a comprehensive valuation analysis of MicroStrategy (MSTR) to provide an answer.
Company Overview
MicroStrategy Inc, known for its MicroStrategy Analytics platform, is a prominent player in the software industry. This platform delivers reports and dashboards, enabling users to conduct ad hoc analysis and share insights through mobile devices or the web. The company's operating segment focuses on the design, development, marketing, and sales of its software platform through licensing arrangements and cloud-based subscriptions and related services.
Currently, the stock price stands at $347.14, resulting in a market cap of $4.90 billion. This positions the stock significantly above the fair value of $260.55, as estimated by our proprietary GF Value. This assessment sets the stage for a deeper exploration of the company's valuation.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor considering the company's past returns and growth, and future business performance estimates. The GF Value Line gives a snapshot of the fair value at which the stock should ideally be traded.
MicroStrategy (MSTR, Financial) is considered significantly overvalued based on the GF Value calculation. This suggests that the long-term return of its stock is likely to be much lower than its future business growth. The GF Value chart below provides a visual representation of this assessment.
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Financial Strength Assessment
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. It is crucial to review a company's financial strength before deciding to buy its stock. MicroStrategy's cash-to-debt ratio is 0.03, ranking it worse than 96.71% of 2734 companies in the Software industry. This ratio, coupled with the overall financial strength rank of 3 out of 10, indicates that MicroStrategy's financial strength is poor.
Profitability and Growth
Profitable companies, especially those with consistent profitability over the long term, are usually safer investments. MicroStrategy has been profitable 7 over the past 10 years. The company had a revenue of $500.20 million and an Earnings Per Share (EPS) of $8.99 in the past twelve months. Its operating margin of 1.35% ranks worse than 52.84% of 2714 companies in the Software industry. Overall, the profitability of MicroStrategy is ranked 5 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of MicroStrategy is -2.2%, ranking worse than 74.37% of 2396 companies in the Software industry. However, the 3-year average EBITDA growth rate is 37%, which ranks better than 82.47% of 1997 companies in the Software industry.
ROIC vs WACC
Profitability can also be evaluated by comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC). MicroStrategy's ROIC of -0.2 is significantly lower than its WACC of 19.55, indicating that the company is not effectively generating cash flow relative to the capital it has invested in its business.
Conclusion
Overall, MicroStrategy (MSTR, Financial) stock is believed to be significantly overvalued. The company's financial condition is poor, and its profitability is fair. However, its growth ranks better than 82.47% of 1997 companies in the Software industry. To learn more about MicroStrategy stock, you can check out its 30-Year Financials here.
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