MicroStrategy (MSTR) shares soar 4.42% as investors bet on the company's bold Bitcoin (BTC) strategy

Holding an impressive 528,185 BTC, Strategy has transformed itself into a powerhouse among corporate cryptocurrency adopters

Strategy (MSTR) stock soared 4.42% to reach $301 in Tuesday’s trading session, hitting a high of $307.60. The stock has seen a remarkable surge of over 2,500% in the last five years, largely driven by the company’s bold Bitcoin (BTC) strategy.

Known for accumulating an impressive 528,185 BTC, Strategy has become a powerhouse among corporate cryptocurrency adopters. To fund this massive accumulation, Strategy has been issuing common shares and preferred stock, showcasing its dedication to amassing Bitcoin as a core treasury asset.

Just last week, Strategy raised $711 million through its STRF preferred stock series, adding to the $18.6 billion already collected from its $21 billion at-the-market common share program. This demonstrates the company’s relentless pace in its funding efforts.

However, not everyone is convinced that this trajectory will hold. Monness Crespi analyst Gus Gala downgraded MSTR to a ‘Sell’ rating, setting a $220 price target, which implies nearly 29% downside from its current level of $307.

Gala’s skepticism arises from his belief that Strategy’s heavy reliance on share issuance may soon hit a wall. Having already utilized $18.6 billion of its $21 billion capacity for common shares, Strategy’s ability to keep raising funds this way is nearing its limit, especially after a shift away from convertible debt following his ‘Neutral’ coverage initiation two weeks ago.

Unless Strategy pivots more toward fixed-income securities, his analysis suggests that the company’s Bitcoin treasury approach could fall, and the market may grow tired of the constant equity dilution.

With 528,185 BTC on its balance sheet, Strategy’s strategy depends on maintaining access to capital, a dynamic that could either cement the company’s dominance or expose it to new risks as funding avenues evolve.output: Still holding a Neutral rating on MSTR, Gala sees potential for further downside as the stock has shot up an impressive 1,030% during his coverage period.

This brings his price target to $220, which is significantly lower than the current level of around $307. However, it’s worth noting that the analyst had previously set a price target of $400 to reflect his belief in the potential for a move to $500 in the intermediate term.

In his analysis two weeks ago, Gala initiated coverage of Strategy with a Neutral rating and a price target of $400. He highlighted the company’s unique treasury strategy, which involves using capital raised through share offerings to invest in Bitcoin.

“We believe that the company’s ability to raise capital is nearing its limit, especially after shifting away from convertible debt in our Neutral initiation two weeks ago. Unless MSTR pivots more toward fixed-income securities, we think this treasury strategy could fall apart, and the market may grow weary of the constant equity dilution,” Gala explained.

As of the last report, Strategy had already utilized $18.6 billion of its $21 billion at-the-market common share program and had no outstanding convertibles.

Moreover, the analyst noted that Strategy’s stock price has soared, outperforming the broader markets and other stocks in his coverage.

“In the past five years, MSTR has risen over 2,500% compared to the S&P 500’s 170% return and an average gain of 500% among the 20 stocks we rate. This performance is a testament to the company’s successful treasury strategy and the strong investor interest in Bitcoin,” he added.

In other news, Strategy will be reporting its second-quarter earnings on Thursday, and the analyst will be particularly focused on the company’s plans for further capital raising in the second half of 2023. Any shift in Strategy’s preferred mode of capital raising will be crucial for determining the sustainability of its Bitcoin treasury strategy.

Stay tuned to Benzinga for more coverage of the MSTR stock.