After a massive rally over the past quarter, shares of MicroStrategy Inc. (NASDAQ: MSTR) started to face some controversy regarding the underlying business model and methods of this technology stock accumulating Bitcoin on their balance sheet through shareholder dilution. However, that pressure quickly subsided after a recent announcement that could boost the company higher.
MicroStrategy has now been accepted into the Nasdaq-100 index, where the company will start trading as of December 23, 2024. This means a mandatory inflow of capital from the market’s biggest funds and investors, as there is a mandatory weight that each constituent in the index must have at all times. What this means for investors is a potential redemption from previous criticisms about the company’s financial management practices.
This is where investors can either join the party at the potential highs or start looking for better alternatives in the cryptocurrency space, stocks that can offer much more upside at lower risk levels if the MicroStrategy model were to fail as initially critiqued. Some of these options might be found in Coinbase Global Inc. (NASDAQ: COIN) or even in CleanSpark Inc. (NASDAQ: CLSK).
Gauging the Future of MicroStrategy Stock
As of today, the Wall Street analyst consensus price target stands at $479.25, calling for up to 37.8% upside from where the stock trades today. However, there are those who see an even higher valuation scenario from here. Sanford C. Bernstein has reiterated its outperform rating on MicroStrategy while keeping a $600 price tag on the stock.
That new view would imply that the company can rally an additional 72.4% from today’s price. However, investors should question whether this upside comes from the addition of the Nasdaq-100 index or financial merit. The answer to that question can be found in the company’s financial statements, particularly the cash flow statement.
As of the last quarter, MicroStrategy reported a net outflow in operating cash flow of up to $35.7 million. However, investors can see in the income statement that the number of shares outstanding went up by nearly 50 million, and MicroStrategy raised as much as $4 billion to buy more Bitcoin for its balance sheet.
While this boosts the stock’s book value, it is now trading at an obscene valuation of 20x its book value, essentially making it an overleveraged play on the price of Bitcoin. Considering how volatile Bitcoin tends to be, especially around its $100,000 key milestone, this might bring additional large swings to investor P/L statements.
That is why considering other, less leveraged names out there could benefit investors.
Coinbase Stock is Standing in the Rain
There’s a reason why analysts at Needham & Co. decided to boost their views on Coinbase stock as of December 2024. They kept their buy rating for the company, but this time, their valuation targets increased to $420 a share, calling for a net rally of up to 50.5% from where it trades today.
The reason behind Coinbase's optimism is simple: As more people become interested in Bitcoin and other cryptocurrency trading, this exchange will be in the middle of the storm, sort of standing in the rain, waiting to get wet. This rain would come through the crazy amount of fees generated by all of the trading activity to be had.
This expectation can be reflected in the earnings per share (EPS) projections given by Wall Street analysts today, set to deliver $0.94 in EPS for the next 12 months, a significant jump up from today’s $0.28 EPS. That sort of profit increase should be enough to offer investors a much smoother ride in the coming months than MicroStrategy could.
CleanSpark Can Double From Here, According to Analysts
Investors can think of CleanSpark as the less leveraged and less volatile version of MicroStrategy. Both companies follow a similar model of accumulating Bitcoin on their balance sheets to boost the stock’s book value. While both offer software services and use part of their revenues to buy Bitcoin, CleanSpark offers a much better profile.
By trading at only 1.9x its book value, this stock could make a significant run to new highs like MicroStrategy did, especially as investors figure out that the same value created in that expensive stock could be replicated in this discounted one.
That is why analysts on Wall Street now have a consensus price target for the company set at $23.17 a share, which calls for just shy of 110% upside from where it trades today. Considering these valuation multiples, investors can take advantage of the bull runs in Bitcoin with a much better setup through CleanSpark today.