MicroStrategy Inc (MSTR, Financial) has recently shown a notable daily gain of 6.11%, and an impressive three-month gain of 89.58%. However, despite these gains, the company reports a Loss Per Share of 6.7. This raises a critical question for value investors: is MicroStrategy significantly overvalued at its current price? This article delves into the intrinsic valuation of MicroStrategy, urging readers to explore the detailed financial analysis that follows.
Company Introduction
MicroStrategy Inc is a prominent player in the enterprise analytics and mobility software sector. It offers a comprehensive analytics platform that delivers robust reports and dashboards, facilitating ad-hoc analysis and insight sharing via mobile devices or the Web. The company's core product, MicroStrategy Server, supports analytical processing and job management. Despite its innovative solutions, there's a significant discrepancy between the company's stock price of $1,376.88 and its GF Value of $254.27, suggesting a potential overvaluation.
Understanding the GF Value
The GF Value is a proprietary measure calculated to represent the true intrinsic value of a stock. This valuation is based on historical trading multiples such as PE, PS, PB ratios, and Price-to-Free-Cash-Flow, adjusted by GuruFocus for past returns and growth, and incorporating estimates of future business performance. Currently, the GF Value suggests that MicroStrategy's stock is significantly overvalued, which could imply poorer future returns for investors buying at the current price.
Financial Strength and Risks
Investigating a company's financial strength is crucial to understanding the risk of potential capital loss. MicroStrategy's cash-to-debt ratio stands at a low 0.02, ranking lower than 97.57% of its peers in the software industry. This indicates that MicroStrategy's financial position might be precarious, meriting cautious evaluation by potential investors.
Profitability and Growth Prospects
While MicroStrategy has been profitable in 7 out of the last 10 years, its recent performance raises concerns. With a negative operating margin of -2.02%, the company's profitability is lower than 61.4% of its industry counterparts. Additionally, its 3-year average annual revenue growth rate of -15.5% is significantly lower than industry standards, suggesting challenging growth prospects ahead.
ROIC vs. WACC Analysis
An effective way to gauge a company's profitability and value creation is by comparing its Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). MicroStrategy's ROIC of -0.06, against a WACC of 26.06, indicates that it is not currently generating adequate returns on its investments, which could be a red flag for value investors.
Conclusion
In conclusion, the current analysis suggests that MicroStrategy (MSTR, Financial) is significantly overvalued based on its GF Value. The company faces financial challenges, with poor profitability metrics and questionable growth prospects. Investors are advised to proceed with caution and consider these factors thoroughly before making investment decisions. For a deeper understanding of MicroStrategy's financial health, interested parties can explore 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.
