Summary:
MicroStrategy has seen a 500% share price increase this year, funding its bitcoin purchases.
As of December 1, 2024, MSTR's bitcoin holdings are valued at $38.8 billion.
Issuing stock can be rational when it's used to buy undervalued assets.
88% of companies in Harris | Oakmark's strategies have conducted stock buybacks in the past year.
Understanding the value relationship between currency and assets is crucial in investment decisions.
Understanding the Recent Trends in MicroStrategy and Bitcoin
MicroStrategy (MSTR) has made headlines recently due to its over 500% share price increase this year, which has led the company to sell stock and convertible securities to fund its bitcoin purchases. With bitcoin recently surpassing $100,000, opinions on this strategy vary widely, from being hailed as genius to labeled as madness. However, this capital allocation strategy is rational, especially from a value investor's perspective.
The Value of Bitcoin for MSTR
As of December 1, 2024, MSTR held 402,100 bitcoins, valued at approximately $38.8 billion. With the share price at $383.25, this puts the premium on bitcoin at over two times its value. Using its stock, which is valued higher than its underlying asset, to purchase more bitcoin helps reduce the premium MSTR shareholders pay, a beneficial move that minimizes the cost of ownership.
The Rationality of Stock Issuance vs. Repurchase
Rational issuers of stock can leverage their attractive currency to acquire assets at fair value. This includes issuing stock when it's overvalued to buy undervalued assets. Conversely, companies repurchase shares to buy back their own stock when they are undervalued, effectively using cash as a currency. This strategic approach allows companies to leverage future returns while waiting for the price-value gap to close.
A Closer Look at Share Repurchases
At Harris | Oakmark, we focus on companies that are undervalued. Around 88% of the companies in our U.S. large-cap value strategies have engaged in stock buybacks over the last year, repurchasing nearly 4% of their market cap on average. Notably, General Motors (GM) has repurchased over 24% of its average market cap, aligning with our strategy of partnering with value-oriented, shareholder-friendly management teams.
Final Thoughts
When analyzing stock repurchases or issuances, remember that they are two sides of the same coin. The value of the currency used in these transactions directly impacts your investment's value. Always consider the relationship between the currency's value and the assets being purchased before forming a judgment.
This is an opinion piece and should not be considered as investment advice.
Comments