Michael Saylor isn’t just the chairman of MicroStrategy (NASDAQ:MSTR), he’s also a well-known cheerleader for Bitcoin (BTC-USD). However, Saylor sold more than 1,000 shares of MicroStrategy stock on March 20.
MicroStrategy bills itself as the “world’s first Bitcoin development company.” I’m not quite sure if that’s true, but MicroStrategy could certainly claim to be the world’s most aggressive Bitcoin-hoarding company if it wanted to.
However, prospective investors should be careful. MicroStrategy’s aggressive cryptocurrency hoarding doesn’t necessarily mean the company actually offers a good value to the shareholders.
Are MicroStrategy Shares Too Expensive?
So, here’s the rundown. Reportedly, Saylor sold 4,312 MicroStrategy shares on April 5, followed by 5,000 shares on April 8, 1,869 shares on April 15 and 2,482 shares on April 17.
These share sales represent huge dollar amounts, since MicroStrategy stock recently traded at around $1,200. Also, we’re not talking about just any MicroStrategy executive here. It’s the company’s outspoken hype man and figurehead, dumping MicroStrategy shares at a rapid clip.
Is it possible that Saylor expects a share price pullback? Maybe he sees MicroStrategy shares as overvalued and wants to take profits.
Notably, on a trailing 12-month basis, MicroStrategy trades at 45.73 times its GAAP-measured earnings, 33.28 times its sales and a whopping 1,676.25 times the company’s cash flow.
Perhaps, then, value-focused investors would be better off just buying Bitcoin or a spot Bitcoin exchange-traded fund. Frankly, it’s hard to blame Saylor for cashing out thousands of MicroStrategy shares at their current, lofty valuation.
Dilution Warning: MicroStrategy Might Convert Bonds Into Stock Shares
Beyond the valuation concerns, it’s also possible that Saylor sees a major event coming. Specifically, MicroStrategy might end up diluting the value of MicroStrategy’s currently circulating shares.
As Bloomberg reported, MicroStrategy has $650 million worth of convertible bonds which have maturity dates in 2025. Furthermore, these bonds offer a 0.75% coupon rate but trade at around 3.8 times their par value.
MicroStrategy can pay the bondholders in cash or convert the bonds into company stock. That conversion would result in the creation of as many as 1.63 million new shares.
Bank of America strategist Michael Youngworth suggested, “It’s more likely that a deep in-the-money convertible bond is ultimately converted into shares rather than being bought back by the issuer.”
Consequently, it’s quite possible that MicroStrategy will end up printing and selling over a million new shares, which raises share value dilution risks for the current stockholders.
MSTR Stock: Just Buy Bitcoin or an ETF Instead
Maybe Saylor unloaded thousands of MicroStrategy shares because they seem richly valued. Or, perhaps he figures MicroStrategy will probably end up issuing more than a million new shares.
Either way, it’s a worrisome situation for MicroStrategy’s investors. That’s why it’s better for cryptocurrency bulls to simply avoid MicroStrategy stock, and instead just buy either Bitcoin or a spot Bitcoin ETF.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
