TLDR
- Citi initiated coverage of Strategy with a buy/high risk rating and set a $485 price target on the stock.
- The bank’s base case forecasts bitcoin reaching $181,000 within 12 months, representing 63% upside from current levels.
- Strategy holds 640,418 BTC as of October 19, making it the largest corporate holder of bitcoin.
- The stock operates as a leveraged bet on bitcoin, with potential for outsized gains in bull markets but sharp losses if bitcoin prices decline.
- Under Citi’s bear case scenario with bitcoin down 25%, Strategy stock could lose about 61% of its value.
Strategy shares traded 1.5% higher in early Tuesday trading around $301 following Citi’s coverage initiation. The investment bank assigned a buy/high risk rating with a $485 price target.
MicroStrategy Incorporated, MSTR
The target reflects Citi’s 12-month bitcoin forecast of $181,000. That represents 63% upside from current price levels.
Citi’s rating positions Strategy as a leveraged play on bitcoin performance. The bank expects the company to maintain a 25% to 35% net asset value premium.
This premium aligns with Strategy’s historical 2.5x to 3.5x bitcoin yield multiple. The structure creates potential for outsized returns when bitcoin rises.
Risk Profile and Downside Scenario
The leveraged nature of the stock cuts both ways. Citi’s bear case paints a stark picture of potential losses.
If bitcoin drops 25% and the NAV premium swings to a 10% discount, Strategy stock could lose about 61%. The volatility reflects the company’s concentrated exposure to bitcoin price movements.
Strategy has transformed itself since 2020 under Executive Chairman Michael Saylor. The company pioneered the digital asset treasury strategy model.
The firm continues to expand its bitcoin holdings through various funding methods. These include convertible debt, preferred equity and stock issuances.
The timing of these raises depends on the NAV premium. Higher premiums make equity issuances more attractive for expanding bitcoin positions.
Current Holdings and Recent Purchases
Strategy purchased another 168 BTC at an average price of $112,051 according to a Monday filing. This brings total holdings to 640,418 BTC.
At current prices, the holdings are valued at approximately $7.06 billion. This makes Strategy the largest corporate holder of bitcoin.
The company’s bitcoin yield has been a key driver of its NAV premium. This metric tracks the year-to-date increase in BTC per fully diluted share.
Strategy stock has gained 34% over the past year. This outpaces the S&P 500’s 15% gain during the same period.
However, the stock lags bitcoin’s 62% jump over the past year. The underperformance reflects pressure on the NAV premium from expected at-the-market issuance programs.
Citi analyst Peter Christiansen expects bitcoin to surge to new records. This would help improve Strategy’s net asset value premium.
The buy/high risk rating from Citi compares with more conservative ratings from other analysts. The SA Quant system and average SA analyst rating both stand at hold.
The average Wall Street analyst rating sits at buy. Strategy’s concentrated bitcoin exposure makes it a more volatile alternative to direct bitcoin ownership.
The stock offers amplified returns on the upside but can result in sharp underperformance on the downside. Strategy purchased its latest batch of 168 BTC at an average price of $112,051, bringing total holdings to 640,418 BTC as of October 19.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
