Two reasons why MicroStrategy (MSTR) is a sell before listing on Nasdaq

MicroStrategy stock has gained significantly due to Bitcoin’s meteoric rise. The resulting increase in market capitalization has put the stock on track for inclusion in the Nasdaq 100. While the news may be positive for many, some question whether the company can sustain the success, especially if the Bitcoin price reverses.

MicroStrategy is known for its large Bitcoin supply and owns 2% of all Bitcoin in circulation. However, the company actually runs a business intelligence, mobile software and cloud services business. Its data-driven analytics capabilities are critical to many businesses, even if they don’t get their fair share of Bitcoin.

As the company focuses on Bitcoin and the price of both Bitcoin and the company’s shares rises, many have lost track of the company’s underlying business. We believe that everything good that could have happened to the stock has already happened, except of course the possibility of listing on the Nasdaq, which we will find out tomorrow.

When things are going well for a company that takes big risks, it’s usually the best time to exit. However, the type of investors drawn to a company like MicroStrategy don’t follow the rules of prudent investing. They will continue to accumulate in inventory, but there are a few things to keep in mind.

MicroStrategy plans to buy $42 billion worth of Bitcoin over the next few years. This will be achieved through its “21/21 Plan,” which will see the company raise $21 billion through convertible notes and $21 billion through market offerings. Without the Bitcoin rally, investors would have already fled. But they continue to ignore what is obvious to many.

Questions will be asked about its business when the company lists on the Nasdaq tomorrow. The company’s profitability in the business intelligence segment is declining. The massive stock dilution to accumulate its Bitcoin holdings has and will continue to put downward pressure on earnings per share. The company had just over 10 million shares outstanding five years ago. Today the number is over 216 million. This value will be further diluted as the company begins implementing its 21/21 plan.

We are therefore pessimistic for the share. Listing on Nasdaq will benefit the company in the short term, but we believe the underlying business is not strong enough to withstand Wall Street scrutiny. At some point the house of cards will collapse.

MicroStrategy isn’t on our latest list of the 31 most popular stocks among hedge funds. According to our database, 25 hedge fund portfolios held MSTR at the end of the second quarter, up from 26 in the previous quarter. While we recognize MSTR’s potential as a leading AI investment, we believe some AI stocks are more promising for delivering higher returns are, within a shorter time frame. If you’re looking for an AI stock that’s just as promising as MSTR but trading at less than 5 times earnings, check out our report on it cheapest AI stock.

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