Shares of MicroStrategy shot up to $255.44 during today's afternoon trading session -- an increase of 9.0% that brings the stock 26.47% over its average analyst target price of $201.97. This may imply limited upside for the Software stock, whose analysts give it a consensus rating of buy, and target prices spanning from $169.21 to $290.0 dollars per share.
The market, on the other hand, is a bit more pessimistic. MicroStrategy's short interest -- meaning the percentage of its share float that is being shorted on an expectation of a price decline -- is quite high at 16.2%. The float includes only shares that are available for public trading, and excludes preferred shares.
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, 50.6% 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 belief that shares are overpriced, 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 |
