Veteran in the field of data analysis MicroStrategy(NASDAQ:MSTR) has crushed the market in recent years. In the summer of 2020, the company converted almost all of its cash reserves into Bitcoin(CRYPTO: BTC) and continues to build on that investment in cryptocurrency. Today, MicroStrategy looks more like a Bitcoin-focused bank than a software company.
The Bitcoin strategy has served MicroStrategy investors well so far. If you had invested $40,000 in this stock five years ago, you would now have $1.08 million in the bank. This towering return left the S&P500(SNPINDEX: ^GSPC) market index far behind and comfortably outperformed Bitcoin:
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MSTR Total Return Level data per YCharts.
But that is all a thing of the past. Could a $40,000 MicroStrategy investment also make you a millionaire after launching in 2024?
Let’s find out.
First and foremost, MicroStrategy is unlikely to turn a $40,000 investment into a million-dollar return in five years or less. Yes, that’s what’s happened over the last five years, but I’m looking at a compound annual growth rate (CAGR) of 93.5%. Doubling your money every year for five consecutive years is incredibly impressive. It seems impossible to keep the streak alive for another five years.
It is also a daring target from other perspectives. Assuming a market cap of $92.1 billion, MicroStrategy would be worth $2.3 trillion at the end of the next 25-fold multiplication. Only five stocks have ever reached that high, and only a handful more appear likely to reach that level in the next five years.
And MicroStrategy’s trillion-dollar journey would require a pretty massive increase in Bitcoin’s market value. The largest cryptocurrency today has a total market value of about $2 trillion, after hitting $100,000 per coin on Wednesday evening. MicroStrategy currently owns approximately 2% of all Bitcoins ever produced. Building a trillion-dollar Bitcoin reserve will require an impressive combination of cryptocurrency price increases and MicroStrategy’s crypto purchases.
So I don’t expect MicroStrategy to repeat the last five years in the next five years. But the calculus changes if you give the company more time to achieve 25-fold returns.
For example, I can easily imagine MicroStrategy maintaining a more modest annual growth rate of around 14% for a long time. At that rate, you would have $1.06 million by the end of 2049. That’s still slightly faster than the long-term averages of the S&P 500. And maybe I’m asking too much by assuming a 25-year period of wealth-building success, but this thought experiment feels pretty reasonable.
There are a few ways to accelerate these returns over the years.
Adding more money to your MicroStrategy investment would be the most obvious method, but it won’t be a pure $40,000 investment anymore.
MicroStrategy has already committed to a third idea, which is to raise more money through dilutive stock sales and interest-bearing debt securities, with the sole intention of buying more Bitcoin. Management plans to raise $42 billion in a 50/50 equity-debt mix over the next three years. More capital efforts could follow, keeping the Bitcoin-powered pedal to the metal. It’s a risky strategy, and MicroStrategy could go bankrupt if the next crypto winter is longer and colder than the last – but it will also increase MicroStrategy’s Bitcoin holdings beyond the current 2% share of the entire asset class.
The company could shed the software business and embrace its emerging role as an asset manager, keeping investors interested with a dividend. Most of the company’s profits would still go toward buying more Bitcoin, but a small portion could fuel a modest dividend policy. Reinvesting these payouts in more shares would shorten the time to the desired million dollar return.
The second point holds the key to making millions with MicroStrategy stock. Management’s ultra-aggressive Bitcoin acquisition plan increases business risk, but at best would also boost the stock’s growth potential. Right now, owning MicroStrategy stock is a lot like buying Bitcoin through a leveraged exchange-traded fund (ETF) that aims to multiply the cryptocurrency’s gains. and lose in the long term.
That’s a highly speculative investment and not something I would consider buying while stock prices are near record highs. A few stocks might be nice if I could pick them up for a modest price after a sharp price correction, but that’s not what MicroStrategy stands for today.
As always, time and patience with robust long-term performers can beat the sky-high market enthusiasts in the long run. If I had to wait 25 years to reach my planned investment goal with MicroStrategy stock, I would much rather do it with a more stable stock or ETF.
And if you agree with MicroStrategy Chairman Michael Saylor that owning Bitcoin is the only reasonable money management plan today, you should consider removing his company’s funding risk and managing your own Bitcoin position instead to build.
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Anders Bylund has positions in Bitcoin. The Motley Fool holds and recommends positions in Bitcoin. The Motley Fool has a disclosure policy.
Can a $40,000 investment in MicroStrategy make you a millionaire? was originally published by The Motley Fool
