Investment Idea: MicroStrategy Incorporated Variable Rate Series A Perpetual Stretch Preferred Stock (STRC)
MicroStrategy Incorporated Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) - Investment Idea
1. Executive Summary
We recommend a Buy rating on MicroStrategy's Variable Rate Series A Perpetual Stretch Preferred Stock (STRC). The preferred stock offers an attractive, floating-rate yield coupled with potential upside stemming from MicroStrategy's growing Bitcoin holdings and core analytics business, making it a compelling income investment within the software sector.
2. Investment Thesis (Bull Case)
- Attractive Yield and Inflation Hedge: STRC offers a variable rate dividend, pegged to a spread over a benchmark rate. This provides a natural hedge against rising interest rates and inflation, making it attractive in the current macroeconomic environment. The current market price represents a potential yield above alternative income investments with similar credit profiles.
- Leveraged Exposure to Bitcoin Upside with Income Cushion: MicroStrategy's significant Bitcoin holdings offer substantial potential upside if Bitcoin prices appreciate. STRC holders benefit indirectly from this potential appreciation through the improved financial stability of the company, supporting the dividend payments. The preferred stock sits higher in the capital structure than common equity, providing a cushion against downside risk related to Bitcoin volatility.
- Solid Core Software Business: MicroStrategy's core business in enterprise analytics and mobility software (Hyper) provides a stable revenue stream. As MicroStrategy continues to innovate and expand its offerings in the analytics space, this should contribute to stronger cash flow and further secure the dividend payments on the preferred stock. The company's established position in the market, along with its long-standing customer relationships, provide a predictable base for future growth.
- Discounted Valuation Relative to Similar Securities: STRC is trading at an attractive discount relative to the common stock and similar preferred securities with comparable risk profiles, creating an opportunity for capital appreciation as market sentiment improves and investors recognize the value proposition.