MicroStrategy MSTR stock hits 3-month high after CEO exits

MicroStrategy (MSTR) stock opened higher on Aug. 3 as investors digested the announcement of the departure of its CEO Michael Saylor aft...

MicroStrategy (MSTR) stock opened higher on Aug. 3 as investors digested the announcement of the departure of its CEO Michael Saylor after a depressed quarterly results report.

Microstrategy stock up 142% since May lows

On the daily chart, MSTR’s price jumped nearly 14.5% to $324.55 per share, the highest level since May 6.

The stock’s intraday gains are part of a broader rally that started on May 12 at $134. Since then, MSTR is up 142% compared to Nasdaq’s gains of 26.81% over the same period.

MSTR daily price chart. Source: Trading View

Bad Q2, Saylor’s resignation

The August 3 MSTR rally took place a day after MicroStrategy reports a loss of one billion dollars during its second quarter (Q2) earnings call. Interestingly, the company’s major bitcoin exposure was a key reason for its poor quarterly performance.

To recap: MicroStrategy is an information technology company that provides business intelligence, mobile software, and cloud-based services. But one of his main business strategies is to invest in Bitcoin to hold it for the long term.

Unfortunately, holding Bitcoin cost MicroStrategy a $917.84 million loss in value of its 129,698 BTC holdings in Q2, mainly due to the 50% Crypto Price Drop YTD (YTD). In comparison, MSTR fell 42% over the same period.

BTC/USD daily price chart. Source: Trading View

Additionally, MicroStrategy’s revenue fell 2.6% year over year to $122.07 million. Net quarterly losses prompted Saylor, who strongly supported the bitcoin investment strategy since August 2020 – to step down as CEO of the company and become Executive Chairman.

MSTR responded positively to the resignation of Saylor and the appointment of Phong Le, president of MicroStrategy, as a replacement, to suggest that investors are comfortable with the change in direction.

What’s next for MSTR?

MSTR’s price for the remainder of 2022 is largely dependent on Bitcoin’s performance, given their consistently positive correlation in recent years. But several measures point to a correction to come.

The weekly correlation coefficient between MSTR and BTC/USD. Source: Trading View

For example, MicroStrategy’s value-to-income (EV/R) ratio was 10.76 on August 3, in “overvalued” territory.

Similarly, the forward price-to-earnings (P/E) ratio of MSTR reached 54.95, more than double the market average of 20-25. In other words, the market expects MicroStrategy to show huge future earnings growth despite its underperformance in recent quarters.

MicroStrategy has also amassed $2.4 billion in long-term debt with $46.6 million in interest expense. Consequently, the company could find itself unable to meet its debts if it continues to incur losses at the current rate.

MSTR Long Term Debt Chart. Source: S&P Capital IQ

In other words, MicroStrategy could pledge its nearly $2 billion worth of bitcoin holdings or sell them to raise capital.

Related: A Brief History of Bitcoin Crashes and Bear Markets: 2009-2022

“Nevertheless, crypto and MSTR bulls can remain invested,” Noted Juxtaposed Ideas, a contributor to Seeking Alpha, in its latest analysis said that most are willing to “bet on Bitcoin’s eventual recovery to $40,000” or beyond by 2023 or 2024.

“It would be a positive catalyst for its future equity rally, making much-needed capital for investing highly volatile.”

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.