Is 40% Upside For MicroStrategy Stock Possible?

Comparing the trend in MicroStrategy’s stock (NASDAQ: MSTR) over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 40% once fears surrounding the coronavirus outbreak are put to rest to reach $165, from current levels of $118. A detailed comparison of MicroStrategy’s performance against the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did MicroStrategy Stock Fare Compare With S&P 500?

At the end of January the World Health Organization (WHO) declared a global health emergency in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. MSTR stock lost 32% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 15% over recent weeks (vs. about 42% gain in the S&P 500) to its current level of $118.

MicroStrategy’s Stock Fell Because The Situation On The Ground Has Changed

MicroStrategy is a U.S based company that provides software solutions for business intelligence (BI) and cloud-based services. As a result of the Covid-19 crisis, businesses are slashing spending worldwide. This is likely to affect the company’s revenues as new product sales and subscription revenues could suffer. However, the company has a strong balance sheet and a large customer base, which should enable it to grow in the long run.  

We believe MicroStrategy’s Q2 results will confirm this reality with a drop in both product licenses and subscription revenues. If signs of coronavirus containment aren’t clear by the July Q2 earnings timeframe, it’s likely MicroStrategy’s stock along with the broader market is going to see another round of sell-offs when results are well below expectations. 

But MicroStrategy Stock Witnessed Something Similar During The 2008 Downturn

We see MSTR stock declined from levels of around $83 in October 2007 (the pre-crisis peak) to roughly $37 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 56% of its value from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by about 51%.

However, MSTR recovered strongly post the 2008 crisis to about $94 in early 2010 – rising by 157% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. 

Will MicroStrategy’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that MSTR stock fell 32% from the market peak on February 19 to the low on March 23 compared to the 56% decline during the 2008 recession, we believe it can potentially bounce back 40% to around the $165 level once economic conditions begin to show signs of improving. This marks a more than full recovery to the $150 level MSTR stock was at before the coronavirus outbreak gained global momentum. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of MicroStrategy’s multinational peers. The complete set of coronavirus impact and timing analyses is available here.

While MicroStrategy’s stock presents some upside potential, which S&P 500 component stocks are likely to outperform the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

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