MicroStrategy’s Implied Premium to Bitcoin Settling Into New Norm, BTIG Says

• BTIG raised its Microstrategy price target to $1,800 from $780.

• The broker said the firm has a greater exposure to bitcoin on a per-share basis.

• The software company should benefit from bitcoin catalysts such as the halving event, the report said.

MicroStrategy has a track record of creating value for shareholders, broker BTIG said in a research report on Friday, raising its price target for the software company and bitcoin (BTC) acquirer. BTIG reiterated its buy rating on the stock and increased its price target to $1,800 from $780. MicroStrategy shares were trading little changed on the day at about $1,617 at publication time. The shares’ outsized gains, up 155% year-to-date, have been driven by the 50% rally in bitcoin, accretive capital raises, and because the implied premium of MicroStrategy’s BTC holdings has grown to over two times versus about 1.5 times during the last year, analysts Andrew Harte and Thomas Smith wrote. Investors have shown support for a higher implied bitcoin premium in a sum-of-the-parts (SOTP) valuation analysis of the company, the report said, noting that while this is elevated compared to historic levels, “investors have demonstrated a willingness to pay for the premium.”

“The premium is supported by a desire for investors to have exposure to bitcoin who may be unable to invest directly in bitcoin or in exchange-traded funds (ETFs), and also supported by MSTR’s ability to accretively raise capital to purchase additional bitcoin for shareholders,” the authors wrote. Due to the company’s capital market activity it now has greater exposure to bitcoin on a per-share basis, the report noted. MicroStrategy is expected to benefit from bitcoin catalysts in the coming year, such as the upcoming halving event, which is expected to take place later this month, BTIG said. The quadrennial halving is when miner rewards are slashed by 50%, thereby reducing the rate of growth in bitcoin supply. The software company’s shares fell as much as 14% last Thursday after prominent short seller, Kerrisdale Capital, said in a report that is short-selling the stock while betting long on bitcoin. The Kerrisdale report noted that the bitcoin price currently implied by MicroStrategy’s share price is $177,000, which is two and half times the spot price of the cryptocurrency. None of the reasons cited for the stock’s relative attractiveness “justify paying well over double for the same coin,” the report added. Kerrisdale isn’t the only equity investor shorting shares of MicroStrategy. Total short interest in crypto stocks is $10.7 billion, with MicroStrategy and Coinbase (COIN) making up 84% of the bearish bets, according to a recent report from S3 Partners. Read more: Crypto Stocks Like MicroStrategy, Coinbase Could Shoot Up If Short Sellers Exit