MicroStrategy (MSTR) Surges – What's Driving the Growth?

Rocketing to a price of $1439.41 during today's afternoon trading session, shares of MicroStrategy are still -13.58% below their average target price of $1665.55. Could there be more upside potential for the stock? Analysts are giving MSTR an average rating of buy and target prices ranging from $1450.0 to $1875.0 dollars per share.

The market is more pessimistic on MicroStrategy, because its short interest -- meaning the percentage of its shares that are being shorted on an expectation of a price decline -- is quite high at 21.1%. The float includes only shares that are available for public trading, and excludes preferred shares held by insiders.

When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.

Another way to gauge the sentiment on MicroStrategy is to look at the percentage of institutions that are invested in the stock. In this case, 63.6% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.

If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.

Overall, there is negative market sentiment on MicroStrategy because its an analyst consensus of some upside potential, a buy rating, an unusually large proportion of its shares sold short, and an average number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.

Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are MSTR's recent cash flows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 12,712 2,938 9,774 1248.14
2022 3,211 2,486 725 -99.2
2021 93,833 2,706 91,127 82.37
2020 53,619 3,651 49,968 -1.41
2019 60,867 10,182 50,685 1240.52
2018 10,627 6,846 3,781
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.