U.S. Markets closed

Did The Underlying Business Drive MicroStrategy's (NASDAQ:MSTR) Lovely 342% Share Price Gain?

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

MicroStrategy Incorporated (NASDAQ:MSTR) shareholders might be concerned after seeing the share price drop 19% in the last month. But that doesn't change the fact that the returns over the last year have been spectacular. In fact, it is up 342% in that time. So it is not that surprising to see the stock retrace a little. Of course, winners often do keep winning, so there may be more gains to come (if the business fundamentals stack up).

See our latest analysis for MicroStrategy

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last twelve months MicroStrategy went from profitable to unprofitable. While this may prove temporary, we'd consider it a negative, so we would not have expected to see the share price up. We might get a clue to explain the share price move by looking to other metrics.

Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
earnings-and-revenue-growth

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling MicroStrategy stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

It's good to see that MicroStrategy has rewarded shareholders with a total shareholder return of 342% in the last twelve months. That gain is better than the annual TSR over five years, which is 23%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that MicroStrategy is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.