With Bitcoin (BTCUSD) Prices Up 22% Over the Past Month and Coinbase (COIN)

With Bitcoin (BTCUSD) prices up 22% over the past month and Coinbase (COIN)

MicroStrategy (NASDAQ:MSTR) is a name that has become synonymous with Bitcoin (BTCUSD:) Treasury strategies among retail investors. The company, originally known for its enterprise software, pivoted its focus to Bitcoin in recent years, leading to gains of more than 1,400% for investors.

Now, as Coinbase (NASDAQ:COIN) prepares to join the S&P 500 Index(SPX) next week in a milestone for the crypto industry, attention is turning back to Strategy as this apex institution pivots to include COIN.

The team at H.C. Wainwright has become notably bullish on Strategy, issuing a massive price target of $480.

Why Some Analysts Are Growing Bullish on Strategy

Looking at Strategy’s five-year chart, it’s clear that long-term believers in Bitcoin have benefited from owning shares in this tech company. Shares of MSTR stock have gone from roughly $10 apiece five years ago to roughly $420 today, and this recent analyst price target suggests 15% upside is still possible from here.

Of course, given the scale of Strategy’s share price appreciation, with shares up 3,200% over the past five years, anything is possible. And as we’ve seen with Bitcoin prices, volatility can indeed be the best friend of long-term investors.

By borrowing massively in the bond market to reinvest into Bitcoin, Strategy’s balance sheet is a mix of U.S. Dollar-denominated debt and Bitcoin-denominated assets. As the value of Bitcoin in dollar terms rises, investors stand to benefit.

Of course, if the long-term trend higher in Bitcoin prices does eventually break down, Strategy’s leveraged position on Bitcoin prices could work against investors. But for now, it's been a rather steady ride higher for those who have stuck with Michael Saylor and his almost fervent faith in the value of Bitcoin as a Treasury asset.

What to Make of MicroStrategy’s Balance Sheet?

I think the key point for investors considering Strategy has to be the company’s balance sheet. H.C Wainwright analysts point out that Strategy has indeed raised more than $25 billion to buy a stack of Bitcoin that’s now worth closer to $50 billion. That’s great.

However, if the company’s debt load exceeds a psychological threshold the market isn’t willing to stomach, it’s plausible that the company’s share price appreciation profile could slow.

In my view, the company’s balance sheet does not look stretched, and there’s a solid argument to be made that Strategy has done a good job of becoming a tool for investors looking for liquid access to leveraged Bitcoin.

That said, I’m always wary of the potential for a significant drawdown in the price of Bitcoin, which could very quickly erode this balance sheet strength, particularly if Saylor continues to acquire Bitcoin at his current rate or ramp up buying activity.

What Do Analysts Think About MSTR Stock?

Aside from the aforementioned analysts at H.C. Wainwright, most other analysts are also bullish on Strategy. As the graph below shows, the consensus “Strong Buy” rating for Strategy has remained in place due to a still-positive forecast for Bitcoin. However, as the macro environment has become increasingly uncertain, the aggregate rating has dropped from a 4.91 to a 4.62 out of 5 over the last three months.

In my view, the consensus $524.17 price target on Strategy is likely a little aggressive, given the plethora of downside risks that could materialize. Saylor and his team have done a good job of buying Bitcoin when it has been cheap. But I’m not among those who believe that “price go up” is a strategy that can be relied on forever.

As mentioned, any sort of drawdown in the price of Bitcoin of more than 50%, and the show could be over for Strategy. That’s a risky proposition right now in my view.