MicroStrategy Stock Has 50% Upside, Analysts Say. It's the Bitcoin Effect. — Barrons.com

Mackenzie TatananniMicroStrategy stock could surge more than 50% with the company's Bitcoin strategy, according to Mizuho Securities analysts.Mizuho analysts led by Dan Dolev initiated coverage of MicroStrategy stock with an Outperform rating and $515 price target. Shares were up 0.3% to $336.94 in morning trading, and Mizuho's price target implies 53% upside.Founded as an enterprise software company in 1989, MicroStrategy's name has become synonymous with Bitcoin. In 2020, it became the first major publicly traded corporation to make the digital token its primary reserve asset.As MicroStrategy has grown into the world's largest corporate holder of Bitcoin, it has increasingly been viewed as a leveraged play on the digital currency.However, Mizuho analysts believe that MicroStrategy's corporate structure sets it apart from Bitcoin exchange-traded funds, and the cryptocurrency itself, which was up 0.8% over the past 24 hours to $101,969 on Wednesday.MicroStrategy's "existence as an operating company has allowed it to access debt and equity capital markets for the purposes of raising money to purchase incremental bitcoin," the analysts wrote.The expectation that the company will continue to snap up more digital currency, coupled with anticipated Bitcoin price appreciation, gives MicroStrategy a 75% premium to the underlying value of its Bitcoin holdings, the analysts wrote.This premium has allowed the company to grow its Bitcoin holdings at a faster rate than its share dilution from capital markets activities.The analysts noted that Bitcoin has "no intrinsic value" on its own, though growing enthusiasm around the finite number of Bitcoins could nudge the price higher.As of Wednesday, there were 19.28 million Bitcoins in circulation, according to CoinDesk data. While it could take over a century for that number to reach the maximum 21 million, Mizuho analysts believe the scarcity could be a catalyst.Mizuho also expects a "more-hospitable political environment" under President Donald Trump to boost value appreciation, in the form of a 25% to 30% Bitcoin price compound annual growth rate through 2027, "albeit with extreme volatility."MicroStrategy itself is a "high-volatility stock," the analysts pointed out, rising and falling with the price of Bitcoin.Shares slipped last week when Trump didn't immediately spell out his plans for crypto despite promising a strategic Bitcoin reserve and less stringent regulations on the campaign trail.Some details emerged Thursday in the form of an executive order, though the mandate fell short of establishing any sort of reserve.On Monday, MicroStrategy revealed that it had bought even more Bitcoin, bringing its total holdings to around 471,107 units of the cryptocurrency.The company's Bitcoin yield, which represents the period-to-period change in the ratio of its Bitcoin holdings to its total assumed shares outstanding, was 2.9% for the period from Jan. 1 to Jan. 26.If the company's number of Bitcoin held increases faster than the share count, MicroStrategy achieves "positive Bitcoin yield," which signals to shareholders that the acquisition of the crypto is accretive rather than dilutive.While the stock may be volatile, Mizuho's lofty price target is a sign that analysts expect to see future gains. MicroStrategy, in their view, is "a lever for the believer."Write to Mackenzie Tatananni at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.