After a massive rally over the past quarter, shares of MicroStrategy Inc. NASDAQ: MSTR began to face some disagreement regarding the basic business model and methods of accumulating Bitcoin on their balance sheet by diluting shareholders. However, that pressure quickly subsided following a recent announcement that could lift the company’s shares.
MicroStrategy is now included in the Nasdaq-100 Index, on which the company will begin trading on December 23, 2024. This means a mandatory influx of capital from the largest funds and market investors, since there is a mandatory weight that each component in the index must always have. For investors, this means potential relief from previous criticism of the company’s financial management practices.
This is where investors can either join the bandwagon at potential highs or start looking for better alternatives in the cryptocurrency space, stocks that could offer much greater upside potential at lower levels of risk if the MicroStrategy model fails as initially criticized. Some of these options can be found in Coinbase Global Inc. NASDAQ: COIN or even in CleanSpark Inc. NASDAQ:CLSK.
Assessing the future of MicroStrategy shares
As of today, the consensus price among Wall Street analysts is $479.25, suggesting upside potential of up to 37.8% from where the stock is trading today. However, there are those who see an even higher valuation scenario here. Sanford C. Bernstein reiterated its overweight rating on MicroStrategy shares, while maintaining its share price at $600.
Microstrategy today
(As of 5:45 p.m. ET)
- 52 week range
- $43.87
▼
$543.00
- Target price
- $479.25
This new view would mean the company could rise another 72.4% from today’s price. However, investors should question whether this upside potential is a result of the addition of the Nasdaq-100 Index or a financial benefit. The answer to this question can be found in the company’s financial statements, specifically the cash flow statement.
As of the most recent quarter, MicroStrategy reported a net operating cash flow outflow of up to $35.7 million. However, investors can see in the earnings report that the number of shares outstanding grew by almost 50 million, and MicroStrategy raised as many as $4 billion to buy more Bitcoin for your balance.
While this boosts the stock’s book value, it is now trading at an obscene 20 times its book value, essentially making it an overleveraged play on the price of Bitcoin. Given how volatile Bitcoin can be, especially around its key $100,000 milestone, this could lead to further significant swings in investors’ earnings reports.
That’s why looking at other, less leveraged companies can benefit investors.
Coinbase shares stand in the rain
There’s a reason analysts at Needham & Co. decided to increase their assessment of Coinbase shares as of December 2024. They maintained their buy rating on the company, but this time their price target increased to $420 per share, which calls for net growth. up to 50.5% of where it trades today.
Coinbase in the world today
(As of 5:45 p.m. ET)
- 52 week range
- $114.51
▼
$349.75
- P/E ratio
- 47.56
- Target price
- $286.22
The reason for Coinbase’s optimism is simple: as more people become interested in trading Bitcoin and other cryptocurrencies, the exchange will be in the midst of a storm, like standing in the rain, waiting to get wet. This rain will be caused by the crazy amount of commissions generated by all the trading activity.
This expectation could be reflected in the earnings per share (EPS) forecasts reported by Wall Street analysts today: 12-month earnings per share of $0.94, a significant jump from today’s $0.28. This kind of earnings expansion should be enough to offer investors a much smoother ride in the coming months than MicroStrategy could.
CleanSpark could double from here, analysts say
Investors may view CleanSpark as a less leveraged and less volatile version of MicroStrategy. Both companies follow a similar model of accumulating Bitcoin on their balance sheets to increase the book value of the shares. While both companies offer software services and use a portion of their revenue to buy Bitcoin, CleanSpark offers a much better profile.
CleanSpark today
(As of 5:45 p.m. ET)
- 52 week range
- $6.41
▼
US$24.72
- Target price
- $23.17
Trading at just 1.9 times its book value, these stocks can rise significantly to new highs, as MicroStrategy did, especially if investors realize that the same value created in these expensive stocks can be replicated in this stock with a discount.
That’s why analysts on Wall Street have now set a consensus price target for the company at $23.17 per share, suggesting upside potential of only 110% from where it trades today. Given these valuation multiples, investors can take advantage of Bitcoin’s bull run with a much better setup today through CleanSpark.
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