Investment bank Citi (C) initiated coverage on Strategy (MSTR) with a Buy/High Risk rating and a $485 price target, positioning the stock as a leveraged bet on Bitcoin. BTC$113,197.67.
MSTR stock rose 1.5% to around $301 in early trading Tuesday.
The price target reflects Citi’s 12-month Bitcoin forecast of $181,000, representing 63% upside from current levels, and also reflects a 25% to 35% net asset value (NAV) premium, which is in line with Strategy’s historical Bitcoin yield multiple of 2.5x to 3.5x, the bank said in a report on Tuesday.
The bank’s analysts argued that due to this structure, Bitcoin’s stock price has a significant impact on Bitcoin’s performance, with significant upside potential in bull markets and sharp drawdowns in the event of a price reversal.
In Citi’s bearish scenario, where Bitcoin falls 25% and NAV premiums range from 35% to a 10% discount, the stock could fall approximately 61%.
The bank credits Executive Chairman Michael Saylor’s 2020 pivot to Bitcoin as a model for its digital asset treasury strategy.
According to the report, the strategy is expected to continue issuing convertible bonds, preferred stock, and equity at a NAV premium to expand its Bitcoin position.
The report notes that the year-to-date increase in the company’s Bitcoin yield, or fully diluted BTC per share, is a key driver of the NAV premium.
In a filing on Monday, Strategy announced that it purchased an additional 168 BTC at an average price of $112,051, bringing its total holdings to 640,418 BTC.
read more: Strategy to expand Bitcoin holdings to 640,418 BTC with latest purchases
