This Crypto Stock Has More Than Doubled Bitcoin's Gains This Year

MicroStrategy has a large exposure to Bitcoin, and that can make its earnings incredibly volatile and unpredictable. Is the stock a buy today?

One of the best ways to invest in crypto is by holding Bitcoin (BTC -0.69%). The popular cryptocurrency is up around 60% this year. Excitement around the latest Bitcoin halving event and new spot exchange-traded funds (ETFs) related to the digital currency are just a couple of reasons why crypto has been a hot place to invest in this year.

But with Bitcoin having a nearly $1.3 trillion valuation, its high price tag can make it difficult to earn the kind of return you might get with a crypto stock that has a modest valuation. One popular crypto stock which has vastly outperformed Bitcoin this year is MicroStrategy (MSTR 0.78%)

MicroStrategy’s stock is up over 130% in 2024

Tech company MicroStrategy has been a scorching-hot buy this year as it has more than doubled in value, largely a result of Bitcoin.

For MicroStrategy, crypto is a big part of its strategy. The company routinely updates investors on its Bitcoin holdings. When it announced its first-quarter results, it led with how many Bitcoins it acquired since the end of the last quarter (25,250) and how many it was currently holding (214,400).

The company has even recently announced it is going to raise $500 million through an offering of senior convertible notes in order to acquire more Bitcoin. It says it’s also going to use the money for “general corporate purposes,” which effectively can include just about any type of corporate expense.

MicroStrategy’s focus on acquiring Bitcoin has made it an attractive option for crypto fans since the business will benefit from Bitcoin’s rising price. It will also, however, incur losses should the cryptocurrency decline in value, but that’s a risk many crypto investors appear willing to take.

The company’s fundamentals aren’t great

If you were looking at MicroStrategy based on its own merits and fundamentals as a business, it wouldn’t be nearly as promising of an investment to own. And odds are, its returns wouldn’t be anywhere near where they are right now.

The company’s business-intelligence software helps businesses make data-driven decisions and utilizes artificial intelligence. But growth has been hard to come by of late. In the first three months of 2024, MicroStrategy reported sales of $115 million, which declined by more than 5% year over year. And even if you exclude the company’s digital-asset impairment losses, which totaled $192 million last quarter, MicroStrategy would have still incurred a $12 million loss during the period.

This isn’t a profitable company, nor has it been growing recently. And there’s a lot of competition in the business intelligence space, which makes its future growth prospects questionable as well. MicroStrategy has effectively become primarily a crypto play; last quarter, the company spent $1.6 billion acquiring digital assets compared with just $1.5 million on plant, property, and equipment purchases.

Should you invest in MicroStrategy stock?

MicroStrategy’s stock trades at nearly 4,000 times its trailing earnings, more than 50 times revenue, and over 11 times its book value. It’s an extremely expensive stock. Based on its fundamentals and what is supposedly the company’s core business, there isn’t much of a reason to invest in MicroStrategy.

The company’s focus on acquiring Bitcoins could make it a more appealing option than owning Bitcoin directly, and that’s the type of investor MicroStrategy might appeal to. At a much smaller valuation than Bitcoin, it may be a good way to gain exposure to crypto. But if you’re not bullish on Bitcoin, you may be better off avoiding MicroStrategy because while the stock’s gains look great this year, its future returns will largely depend on how high the digital currency goes — and that can be incredibly difficult to predict.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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