Here’s Why Bireme Capital is Short MicroStrategy (MSTR)

Bireme Capital, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 47.1% was recorded by the fund for the year end 2020, outperforming its S&P500 benchmark that delivered an 18.3% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Bireme Capital, in their Q4 2020 investor letter, said that MicroStrategy Incorporated (NASDAQ: MSTR) has shrinking revenues and negligible profits. Bireme Capital identifies MicroStrategy Incorporated as one of the companies they treat as great pretenders. MicroStrategy Incorporated is a business intelligence company that offers software and cloud-based services.  The company currently has a $5.5 billion market cap. Since the beginning of the year, MSTR soared  52.03%, extending its 12-month gains to 333.46%. It settled at $645.66 per share at the closing of March 4, 2021.

Here is what Bireme Capital has to say about MicroStrategy Incorporated in their Q4 2020 investor letter:

“MicroStrategy (MSTR) is the latest firm with shrinking revenues and negligible profits to pivot to the blockchain. Rather than attempt to start a cryptocurrency business, MSTR pivoted in the most straightforward way possible: it simply bought hundreds of millions of dollars worth of bitcoin overnight. In one light, this is an utter abdication of all the principles of corporate finance. Why not return the money to shareholders, who can decide for themselves whether or not they want to own bitcoin? But in another light, this was a brilliant end run around the SEC, who has been denying bitcoin ETF proposals le and right for years. MSTR went from being a mere stagnant software business to the de facto bitcoin ETF.

MSTR has made a ~$3b windfall on its bitcoin purchases. However, its market cap has increased by roughly $9b. While nonsensical, this massive premium is unsurprising, given the froth in the cryptocurrency market and the paucity of publicly listed vehicles for bitcoin speculation. According to our calculations, MSTR’s current share price implies a bitcoin price of $122,000, more than double current levels.

We calculate the fair value of MSTR shares to be $450 at current bitcoin prices. It trades at nearly $1000, because “bitcoin.”

We are short MSTR.”

Our calculations show that MicroStrategy Incorporated (NASDAQ: MSTR) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, MicroStrategy Incorporated (NASDAQ: MSTR) was in 31 hedge fund portfolios, compared to 30 funds in the third quarter. MSTR delivered an impressive 74.51% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.