MicroStrategy Stock Premium Soars: Why Benchmark Sees No Reason to Worry

MicroStrategy, a company well-known for its massive Bitcoin holdings, has been the center of attention as the premium on its shares continues to rise. According to a report by Benchmark, MicroStrategy’s stock is trading at a premium of 2.3 times its net asset value (NAV), after hitting a three-year high of 2.7x earlier this month. Some market observers argue that this premium is too high and that the stock should be more aligned with the value of the company’s Bitcoin holdings.

However, Benchmark analyst Mark Palmer sees this rising premium as a reflection of MicroStrategy’s unique approach to leveraging its Bitcoin. Palmer points to the company’s use of low-cost debt and equity dilution to expand its Bitcoin per share, creating what he calls a “flywheel” effect. This strategy, he argues, makes MicroStrategy’s stock more than just a proxy for Bitcoin’s price, but a dynamic investment that generates compounding returns over time.

MicroStrategy’s Long-Term Strategy

As of mid-September, MicroStrategy holds over 252,000 Bitcoin, valued at approximately $15.8 billion. The company’s consistent acquisition of Bitcoin over the past few years has allowed its stock to rise by a remarkable 1,600% over the past four years. This growth far exceeds Bitcoin’s price appreciation during the same period, outpacing Bitcoin by 3.8x and leaving the S&P 500 and Nasdaq indices trailing by 22x and 24x, respectively.

Palmer also suggests that MicroStrategy may soon explore generating yield from its Bitcoin by lending a portion of its holdings. This would align with Executive Chairman Michael Saylor’s vision of transforming MicroStrategy into a “Bitcoin bank,” with the long-term goal of growing the company into a trillion-dollar business.

Investors Eye Unique Leverage

Despite concerns from some analysts about the growing premium, Palmer argues that MicroStrategy’s intelligent use of leverage sets it apart from other Bitcoin investment options, such as ETFs. The company’s ability to harness low-cost debt and equity dilution to accumulate Bitcoin gives it an edge in the crypto space, making the stock’s premium justified, according to Benchmark.

At the time of publication, MicroStrategy’s shares have risen over 8%, trading at $209.09, with a year-to-date increase of more than 200%. As the crypto space continues to evolve, the company’s unique strategy could further cement its position as a leader in the Bitcoin investment world.