Monness cuts Strategy stock rating to Sell, sets $220 target

On Tuesday, Monness Crespi Hardt downgraded Strategy Inc. (NASDAQ:MSTR) stock from Neutral to Sell, establishing a new price target of $220.00, significantly below the current trading price of $288.27. According to InvestingPro data, the stock has experienced a sharp 15.7% decline over the past week, with analyst targets ranging from $225 to $650. The firm’s analysis suggests a growing skepticism towards the company’s ability to continue its Bitcoin acquisition strategy, given the heavy reliance on convertible debt issuance which appears to be reaching its limits.

Strategy’s approach to expanding its Bitcoin holdings has, according to Monness Crespi Hardt, hit a potential roadblock as the convertible issuance strategy seems increasingly tapped out. InvestingPro analysis reveals concerning financial health indicators, with a current ratio of 0.71 indicating short-term obligations exceed liquid assets. The firm notes that Strategy has already utilized about $18.6 billion of its $21 billion at-the-market (ATM) offering. This comes as other companies, like GameStop (NYSE:GME), begin to adopt similar Bitcoin holding strategies, potentially diluting the uniqueness of Strategy’s approach.

Monness Crespi Hardt also points out that Strategy’s alternative funding options, such as preferred stock issuances, could be more expensive and less appealing to investors. The firm’s analysis indicates that if Strategy aims to reach the consensus year-end holding of approximately 554,000 Bitcoins, it would represent a significant portion of the U.S. preferred issuance market, raising concerns about market saturation and Strategy’s ability to finance further acquisitions at current levels.

The firm updated its valuation of Strategy, taking into account the recent preferred capital raise and the acquisition of an additional 22,048 Bitcoins last week, which brought the company’s total holdings to 528,185 Bitcoins. Based on InvestingPro metrics, Strategy currently trades at a high revenue multiple, with a market capitalization of $75.1 billion despite generating only $463.5 million in revenue over the last twelve months. The analysts also highlight the potential impact of widening high-yield spreads on the company’s cost of capital, as well as the recent $2 billion share issuance following the shift towards fixed income.Get access to over 10 additional InvestingPro Tips and comprehensive financial analysis for Strategy Inc. and 1,400+ other stocks through the Pro Research Report, available exclusively on InvestingPro.

Monness Crespi Hardt’s downgrade comes amid a broader industry trend of companies using convertible notes and preferred stock to finance Bitcoin purchases. Despite showing strong momentum with a 77.2% price return over the past six months, Strategy faces profitability challenges, with a negative EBITDA of $1.85 billion in the last twelve months. The report mentions Marathon, another Bitcoin-related company, announcing a $2 billion shelf, underscoring the increased competition for funding within the sector. The firm concludes that the consensus estimate for Strategy’s year-end Bitcoin holdings may be overly optimistic, given the current market dynamics and Strategy’s remaining issuance capacity.

In other recent news, Strategy has made significant financial moves, highlighting its ongoing commitment to cryptocurrency investments. The company purchased an additional 22,048 bitcoins for approximately $1.92 billion, bringing its total bitcoin holdings to 528,185 units. This acquisition was funded by proceeds from its Common ATM, STRK ATM, and STRF Offering. Additionally, Strategy successfully sold 3,645,528 shares of its Class A common stock, generating $1.20 billion in net proceeds, with $2.37 billion worth of shares still available for future sale.

The company also sold 213,807 shares of its 8.00% Series A Perpetual Strike Preferred Stock, resulting in $18.52 million in net proceeds. In a related development, Strategy introduced a new class of capital stock, the "10.00% Series A Perpetual Strife Preferred Stock," issuing 8.5 million shares. This stock offers a 10.00% annual dividend rate, payable quarterly, with provisions for additional dividends if payments are delayed.

Bernstein SocGen Group reaffirmed an Outperform rating on Strategy, maintaining a price target of $600.00, reflecting confidence in the company’s business strategy and increased Bitcoin holdings. Meanwhile, Monness Crespi Hardt initiated coverage with a Neutral rating and a $200 price target, expressing concerns about market saturation. These recent developments underscore Strategy’s active role in the cryptocurrency market and its strategic financial maneuvers.

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