Summary MSTR's fundamentals are weak, with negative growth and profitability metrics, making its sky-high valuation irrational compared to peers. The company's business model is less adaptable and riskier than other crypto-related firms, relying solely on Bitcoin's price appreciation. MSTR trades at a massive premium to its Bitcoin holdings, raising the question of why not just buy Bitcoin directly instead. Given these factors, I rate MSTR a strong sell, as it is fundamentally the weakest crypto stock and extremely overhyped. Introduction MicroStrategy Incorporated ( NASDAQ: MSTR ) is likely one of the most controversial stocks out there. While some love it and praise Michael Saylor's strategy, others hate it. In this article, I will show why MSTR is currently a bad investment and even a potential short candidate. Fundamentals MSTR's profitability is overall mixed. While the company does have a strong gross profit margin of 70%, far higher than the industry average, it also has a negative ROE of -30.86% and negative ROA of -12.14%, in contrast to positive values for the sector median. Furthermore, growth does look far worse. MSTR currently has negative revenue growth of -6.19% and negative forward revenue growth of -1.31%. Additionally, forward EBITDA growth is at -25.86%, which does imply no great future outlook for the company. This is especially a problem as the rest of the industry shows positive growth numbers. Considering the rather bad profitability and growth measures, MSTR's valuation looks completely irrational. At a forward EV/EBITDA ratio of 3562.79, the company is more than 240 times as expensive as the median. While the P/B ratio is only 3.44, it still seems elevated considering that other companies that do buy and hold, like Berkshire Hathaway Inc. ( BRK.B ), are only at a P/B ratio of 1.66. The P/S ratio is again extremely high at 193.9, 64 times higher than the median value. Furthermore, MSTR does not even have positive earnings yet, meaning that there is no P/E ratio at the moment. Peer Group Analysis While there are not many companies that have the exact same business model that MSTR has, it does make sense to compare MSTR to companies that are also heavily reliant on the performance of cryptos. When looking at profitability, MSTR has a solid gross profit margin, with only Coinbase Global, Inc. ( COIN ) and Robinhood Markets, Inc. ( HOOD ) being strong at 85.25% and 90.98%, respectively. Nevertheless, MSTR has by far the worst ROE and ROA, with MARA Holdings, Inc. ( MARA ) being the only other company that shows negative (but much less severe) returns at -10.61% ROE and -5.11% ROA. Considering growth, every company from the peer group, including all the above-mentioned and Block, Inc. ( XYZ ), has positive current and forward revenue growth as well as positive forward EBITDA growth. The last point is valuation, displayed in Figure 1, and also includes Tesla, Inc. ( TSLA ) as it is firstly a big holder of Bitcoin and secondly is known for having a high valuation, making it a good comparison to MSTR that shares those attributes. As can be seen, MSTR is by far the most expensive company in terms of EV/EBITDA and P/S ratios. It is almost 50 times as expensive as TSLA, one of the most hyped companies out there. That MSTR has a comparably low P/B ratio is likely due to its position as an asset holder. However, the comparison to MARA, which can be considered an asset holder, instantly shows that MSTR is even more expensive in this ratio. Figure 1 - Valuation Metrics of MSTR and Peers (Data: Seeking Alpha; Table Self-Created) All of this raises the question of how MSTR's high valuation can be justified if the company has the worst fundamentals at the highest price. This problem becomes even more severe when comparing the company to the business models of its peers. As a buy-and-hold Bitcoin holder, MSTR can only make money when Bitcoin rises. In contrast, COIN and HOOD make money as long as trading volume is high. Furthermore, MARA mines Bitcoin and is therefore also not completely reliant on Bitcoin rallying. Another factor that has to be considered is MSTR's strategy for buying Bitcoin. To do so, the company issues convertible debt. Because of this, debt holders usually use their option to convert debt to equity as long as MicroStrategy's stock price rises, which again is dependent on how Bitcoin performs. This has so far allowed the company to maintain a relatively low debt/equity ratio of around 24%. Nevertheless, should Bitcoin stop rising for a certain time, debt holders will not convert, burdening MSTR with interest payments that they somehow have to finance. Furthermore, as one of the biggest buyers of Bitcoin over the past years, the question remains of how much of the price increase in Bitcoin can be attributed to MSTR. Should MSTR stop buying because of potential interest payments, we could see much slower price appreciation in the Bitcoin market, again increasing the debt level of MSTR, which could lead to a self-reinforcing spiral where MSTR would have to sell some of its 568,840 Bitcoins to finance its debt. While the company currently pays between 0.625% and 2.25% interest on its convertible debt, rates could spike if the call aspect of the debt is considered as being less valuable. All of this adds additional tail risk and further increases the question of why investors should not simply buy Bitcoin directly instead of buying it through MSTR at a premium of roughly 94% to the NAV of its Bitcoins (dividing the market cap of 114B by the value of Bitcoins held, which is $102,600 times 568,840). Trade Execution Resulting from all of this is that investors should at best stay away from MSTR stock due to its high valuation. While I generally like shorting the stock, I would only do so on the way down, when it either falls below its 200-day simple moving average or turns to negative 6-month momentum. Currently, the company is far away from both of these suggestions. While it could also be interesting to short MSTR and go long on Bitcoin, the trade could show some losses as MSTR is generally even more volatile than Bitcoin. Nevertheless, it could be an attractive way to profit from a fall in P/B value despite rising crypto prices. Conclusion In total, MSTR seems like the fundamentally weakest stock in the whole crypto sector at an incredibly high valuation that simply suggests that the company is overhyped. Furthermore, MSTR is less adaptable than other companies from the crypto sector, while at the same time trading at a huge premium to the Bitcoin it holds, raising the question of why investors should not simply invest in Bitcoin directly. Because of this, the company gets a “strong sell” from me as I simply do not see any credible argument in favor of MSTR when comparing it to valid alternatives.