Strategy bought bitcoin on the downturn for nearly $1 billion. Is its stock worth investing in?

Michael Saylor's Strategy, which is the largest public holder of bitcoin, last week made its largest bitcoin purchase since July. It bought $835.6 million worth of tokens, according to documents filed with the U.S. Securities and Exchange Commission (SEC). Strategy now has a total of 649,870 bitcoins on its balance sheet, valued at about $61.7 billion. Most of the purchase was financed through a fixed-income Eurobond offering, Bloomberg notes.

In trading on Monday, Strategy's shares momentarily fell 2% to $195.7, after which they recovered some of their losses and are trading down 1.7%. Bitcoin has fallen 0.8% over the past 24 hours, at the time of publication of this text it was worth just over $95,000.

Since the company announced in August 2020 the start of token purchases, its capitalization has grown by more than 1,500%. Since the beginning of this year, the securities have lost almost a third of their value.

Bitcoin has fallen in price by almost 30% since the beginning of October, contrary to investors' expectations that Wall Street's increased participation in cryptocurrency purchases, Washington's friendlier rhetoric and capital inflows into traditional ETFs would stabilize the market, Bloomberg writes. Retail investors who lost money in previous waves of bitcoin sell-offs are still in no hurry to return, and its liquidity has declined, the agency explains. The pressure is especially tangible for companies that have transferred their assets into cryptocurrencies, and now the price of their shares fluctuates synchronously with the rate of tokens.

The latest drop has brought the capitalization of players like Strategy closer to the value of their bitcoin reserves, Bloomberg notes. Now the company's capitalization is $56.3 billion. In such a situation, "buying on a drawdown" becomes much riskier, and Strategy's disclosure turns into a confidence test for institutional investors, the agency believes.

Strategy's mNAV (the ratio of the company's market capitalization to the value of its bitcoin assets) has plummeted from above 2.5 to 1.2. The premium that used to make the company's stock a bet on bitcoin is now too Ma to attract speculators, which in turn weakens the very mechanism that previously inflated the valuation, Bloomberg states.

Wall Street investment houses remain optimistic about Strategy and overwhelmingly recommend its shares for purchase. These ratings (Buy and Overweight) were assigned by 14 analysts out of 16, according to MarketWatch. One analyst holds a neutral position (Hold) and one advises to sell these securities (Sell).

The average target price of $501 implies the potential growth of quotations by 2.5 times relative to the current value.

This article was AI-translated and verified by a human editor