Cantor Fitzgerald’s Brett Knoblauch rides on a sharp drop in Strategy (MSTR) price, lowering his 12-month price target for Strategy (MSTR) to $229 from $560, citing weaker Bitcoin-related funding conditions .
The new target is still nearly 30% higher than the current price of $180, and Knoblauch maintains his Overweight rating.
Strategy built its business model by raising capital through common stock, preferred stock and convertible debt issuances and using the cash to buy more Bitcoin. The flywheel has been working well for years, driving MSTR to eye-popping returns since first purchasing Bitcoin in 2020. Over the past year, though, investors have been less willing to value Strategy at a high premium to its Bitcoin stack. This, coupled with Bitcoin’s poor price performance, resulted in MSTR falling approximately 70% from its peak in late 2044.
Cantor now calculates Strategy’s fully adjusted market net asset value (mNAV) at just 1.18x – still a premium, but well below past higher levels. This limits Michael Thaler and team from raising capital through common stock sales that may now be dilutive.
As a result, Knoblauch lowered Strategy’s annual capital markets earnings forecast to $7.8 billion from $22.5 billion. The value of Strategy’s financial business, which is essentially how much potential upside can be captured by raising capital and buying Bitcoin, fell from $364 per share to just $74.
Still, Knoblauch isn’t giving up on the company. “This is a result of lower Bitcoin prices and lower P/E ratios,” he wrote in a Friday note. While he sees the current market as a headwind, his Overweight rating suggests the strategy could come into play again if Bitcoin prices recover and investors are interested in returns on leveraged exposure.
That sentiment was echoed in a separate report by Mizuho Bank, which took a more optimistic stance on Strategy’s near-term financial health. After raising $1.44 billion in equity, the company has built up enough cash reserves to cover 21 months of preferred stock dividends. Analysts Dan Dolev and Alexander Jenkins said this gives Strategy the flexibility to maintain its position without having to sell Bitcoin.
At a recent event hosted by Mizuho, Chief Financial Officer Andrew Kang outlined a cautious approach to future financing. He said the company has no plans to refinance its convertible debt before its first maturity in 2028. Instead, it will rely on preferred shares, which will allow it to obtain capital while retaining its Bitcoin holdings.
Kang also made it clear that the company will only reissue new shares if its mNAV rises above 1 – suggesting that the market is once again valuing its Bitcoin exposure at a premium. If this does not happen and raising funds becomes more difficult, consider selling Bitcoin, although this should only be a last resort.
The company appears to be borrowing from its 2022 strategy, pausing Bitcoin purchases during market downturns and resuming purchases when conditions improve. Analysts say this strategy of maintaining patience and liquidity can help Strategy weather the current downturn.
Read more: Benchmark says strategy remains top Bitcoin proxy, rejects ‘doomsday’ narrative