Strategy (NASDAQ:MSTR | MSTR Price Prediction) trades at $111.62. Michael Saylor’s bitcoin vehicle is under pressure from two sides at once: an index provider is dropping it, and the coin it holds keeps falling.

Strategy pairs a legacy MicroStrategy analytics software business with the largest corporate treasury of Bitcoin (CRYPTO:BTC). It held 848,517 BTC[1] at its last quarterly report. It pays for those purchases by selling common stock, convertible notes, and preferred shares, and it has raised $21.23 billion[1] this year. MSCI (NYSE:MSCI) will now delete the company from its equity indexes under new rules for non-operating companies, effective at month-end. The stock’s Nasdaq listing is unaffected.

Shares Below Book Value With Cash to Cover Obligations

Strategy trades at a price-to-book ratio of 0.852, so the market values the equity below its stated book value. Last quarter showed what happens when bitcoin rallies. GAAP diluted EPS of $44.75[1] beat the $17.98 consensus as bitcoin rose 43%.

USD Assets of $5.07 billion[1] cover 3.4 years of dividends and interest. A $1.0 billion[1] MSTR buyback authorization has not been used yet. Index selling happens once and then stops, and some of it may already be priced in. Saylor says bitcoin is entering its next bull market.

Index Outflows and a Below-Cost Bitcoin Price Threaten the Funding Engine

MSCI found that companies dominated by non-operating financial assets look more like investment vehicles than operating businesses. Strategy had previously estimated that removal could cause about $2.8 billion in selling. JPMorgan Chase (NYSE:JPM) estimated outflows of up to $8.8 billion if other index providers follow. Barron’s reports that investors are dumping a chunk of the stock.

Bitcoin now trades at $65,415, below the company’s average cost of about $75,456 per coin on 850,364 BTC. A shrinking premium over bitcoin value makes issuing new shares less attractive, and dilution already shows up in the numbers. BTC Yield stands at (3.7)%[1] this year. The company sold about $431.8 million[1] of bitcoin to fund preferred dividends and buybacks of its STRC preferred shares. Quarterly preferred dividends rose to $419.6 million[1] from $139.9 million.

A Cash Cushion Buys Time for a Bitcoin Rebound

Removal from the index carries no requirement to sell bitcoin, and the coin remains above its one-year low of $58,566. With years of obligations covered, Strategy can afford to wait. Bitcoin climbing back above its 200-day average of $72,981.98 and STRC returning to its $100[1] stated amount would signal improving conditions. Larger outflows would signal further pressure.

Wall Street Sees 109% Upside While Shares Badly Trail the S&P 500

Strategy currently trades at $111.62. The average analyst target is $233.27, which means about 109% upside. Price targets are one data point and guarantee nothing. Sixteen analysts cover the stock:

  • Strong Buy: 2
  • Buy: 13
  • Hold: 1
  • Sell: 0

Over the past month, shares fell 22.07% while the S&P 500 slipped 1.98%. Year to date, MSTR is down 26.54%, even as the index is up 10.62%. Over one year, the stock lost 46.48% while the S&P 500 rose 12.25%.

Pressure Persists Until Bitcoin and the Premium Stabilize

At $111.62, Strategy faces several near-term pressures.

The next leg lower could come at month-end, when passive funds tracking MSCI benchmarks have to sell. Bitcoin trades below its 20-day, 50-day, and 200-day moving averages. Every further drop puts more pressure on a model that depends on selling stock at a premium.

Some of the damage is already priced in. Shares fell 22.07% in a month, while bitcoin dropped 19.76% over 30 days. However, about $16 billion[1] of Digital Credit ranks ahead of common shareholders, so any further fall in bitcoin hits the common stock hardest. A discount to book value only helps if book value holds, and this book value rises and falls with bitcoin.

Three things would force a fresh look: bitcoin holding above its 200-day average, the premium over bitcoin value recovering, and a positive BTC Yield achieved without heavy dilution. Keep an eye on the fourth-quarter report and on whether management actually uses its MSTR buyback.

Until those signals appear, MSTR remains a leveraged claim on a falling asset with fewer natural buyers, and the lower share price shows real damage.

Contact [email protected] for any questions or corrections.

After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.