One of Wall Street's oldest banks just told investors that a stock trading at $156.76 is headed to $240, a 53% climb. The call comes from Citigroup, which traces its lineage to the City Bank
One of Wall Street's oldest banks just told investors that a stock trading at $156.76 is headed to $240, a 53% climb.
The call comes from Citigroup, which traces its lineage to the City Bank of New York, chartered in 1812. Like most big banks, Citi employs research analysts whose job is to study companies and publish a "price target" — their estimate of what the stock should be worth about a year from now — along with a rating that tells clients whether to buy, hold or sell.
Inside Michael Saylor's Bitcoin Strategy (4:18)On this stock, Citi analyst Peter Christiansen just moved his price target from $136 to $240, with a "Buy" rating.
The stock is Strategy, listed on the Nasdaq exchange under the ticker MSTR. And the timing is no coincidence: days earlier, the same bank raised its 12-month forecasts for Bitcoin and Ethereum, the two biggest cryptocurrencies, by more than 35%. Strategy, more than any stock on the market, rises and falls with Bitcoin.
Related: Trump's stock accounts quietly loaded up on Strategy and Tesla, filing shows
Strategy began life in 1989 as a business software company, co-founded by billionaire Michael Saylor. In 2020, mid-pandemic, it reinvented itself around a single idea.
Sell new shares of the company to investors, use that cash to buy Bitcoin, hold the Bitcoin, and repeat.
The company holds more Bitcoin than any other corporation on Earth — a record 847,666 coins after buying 1,665 more last week.
Why would anyone buy the stock instead of just buying Bitcoin?
Convenience, mostly. MSTR trades like any other share, which means, you get exposure to Bitcoin, without actually owning Bitcoin.
Michael Saylor, chairman and chief executive officer at MicroStrategy, speaks during the DC Blockchain Summit in Washington, D.C., US, on Tuesday, May 24, 2022.Getty Images
This year's Bitcoin slump forced Strategy to pause its buying for weeks and even sell some coins — from a company whose chairman once made "never sell" a slogan.
Because Strategy is essentially a wrapper around Bitcoin, Wall Street judges it with one question: is the company worth more or less than the Bitcoin it holds?
The metric that answers this is called mNAV, short for market net asset value. Think of it like a gift basket. If the fruit inside costs $100 and the basket sells for $120, you're paying a $20 premium for the packaging. If the basket sells for $90, the packaging is worth less than nothing — you'd be better off buying the fruit yourself.
An mNAV above 1 means investors are paying a premium: they value Strategy at more than its coins. Below 1 means the market thinks the wrapper subtracts value, and a dollar spent on Bitcoin directly buys you more.
Strategy spent much of this year below 1 — a vote of no confidence that tracked the Bitcoin slump. With Bitcoin's recent recovery, the mNAV has climbed back above the line and currently stands at 1.20.
Christiansen's math rests on two separate bets.
Bet one: Bitcoin itself goes up. Citi's new forecast puts Bitcoin at $113,000 a year from now. If that happens, the 847,666 coins Strategy sits on are simply worth more, and the analyst credits this for roughly 34% of the stock's upside.
Bet two: the premium grows. Christiansen expects investors to pay even more for the wrapper — his model raises the mNAV assumption from 1.065 to 1.24 — and that accounts for the other 16%.
Related: I asked America.gov what's the status with U.S. strategic Bitcoin reserve
