Shares of MicroStrategy (MSTR 6.19%) jumped 24.7% higher this week, according to data from S&P Global Market Intelligence. The Bitcoin investment company was helped by the cryptocurrency’s price appreciation this week along with a convertible debt offering at a 0% interest rate. As of the market close on Friday, Nov. 22, MicroStrategy stock is up 515.7% year to date.
Here’s why the stock was rising yet again this week.
More Bitcoin appreciation and debt offering
Back in 2020, MicroStrategy CEO Michael Saylor made a bold move by taking the company’s balance sheet and buying Bitcoin. The bet has paid off handsomely, with the company selling new shares of common stock and taking out debt in order to further accelerate its Bitcoin buys. As of its latest update, MicroStrategy now holds 279,420 Bitcoins.
This week, the price of Bitcoin went up around 10%, which likely propelled investor optimism with MicroStrategy stock. However, there was another news item that likely caught Wall Street’s eyes as well. This week, MicroStrategy closed on a $3 billion convertible note with a 0% interest rate due in 2029. A convertible note is a debt offering that can be converted into common stock if the stock is above a certain level. MicroStrategy has obtained extremely attractive financing with this debt by paying 0% annual interest and having the debt due in 2029.
Management will now be able to buy more Bitcoin with these funds and will only have to pay back the principal on the debt in 2029 or have it convert to common stock if MicroStrategy stock is above $672.40 per share. Today, the stock trades at $421.88.
Should you buy MicroStrategy stock?
Obtaining 0% interest financing is attractive, and MicroStrategy can use this to its advantage if more investors line up for convertible note offerings. This doesn’t make the stock a buy for long-term investors, though.
At its current market cap of $86 billion, MicroStrategy trades at close to 3 times the underlying value of its Bitcoin holdings, even with how much Bitcoin has gone up this year. Its other business — operating a software company — is so small it doesn’t warrant much in doing valuation worth. The math is simple: If you want exposure to Bitcoin, you can buy MicroStrategy stock at 3 times the actual value of its Bitcoin holdings. Or you can actually buy Bitcoin yourself. Or, you can just not buy risky cryptocurrencies altogether. That is an option investors sometimes forget when prices are going to the moon.
Logical investors know what to do. Skip MicroStrategy stock at these elevated levels. If you want exposure to Bitcoin, buy the actual cryptocurrency instead.
Brett Schafer 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.
