Overlooked MicroStrategy Stock? Chairperson Michael Saylor Commends Lesser-Known Stock that Doubled Its Worth in Only the Recent 3 Months.
In September, the shares of Riot Blockchain Inc. (RIOT -2.76%) plummeted to almost $6, marking its lowest price in nearly two years. Yet, within just three months, the company's stock has surged more than double. Some investors believe this growth trend is far from over.
The surge in Riot Blockchain Inc.'s stock could be attributed to similar trends observed in MicroStrategy Incorporated (MSTR -4.40%) over the past few years. Established in 1998, MicroStrategy's stock had stagnated by the end of 2019. However, since the beginning of 2020, the company's stock has skyrocketed more than 2,500%.
MicroStrategy's significant growth can be largely credited to its focus on investing in cryptocurrency, particularly Bitcoin (BTC 0.20%). Over the past few years, the company has been actively accumulating Bitcoin, spending over $27 billion as of Dec. 16, 2021.
MicroStrategy's executive chairman and co-founder, Michael Saylor, has been instrumental in leading the company's Bitcoin investment strategy. Online, Saylor has been vocal about his support for Riot Blockchain Inc., highlighting the company's shift towards Bitcoin.
Can Riot Blockchain Inc. follow in MicroStrategy's footsteps?
Riot Blockchain Inc. is a Bitcoin mining company that generates Bitcoin as part of its operations. By December 2021, the company had amassed 11,425 Bitcoins, all of which were mined in-house. However, the company aims to grow its Bitcoin holdings further. Instead of waiting to mine more, Riot Blockchain Inc. decided to raise capital by issuing convertible notes.
On December 9, 2021, Riot Blockchain Inc. raised $579 million by issuing convertible notes. The company intends to primarily use this money to purchase Bitcoin. This debt offering was significant given Riot Blockchain Inc.'s modest market capitalization of around $4 billion at the time.
As a result of this capital raise, Riot Blockchain Inc. has been actively purchasing Bitcoin. By Dec. 13, 2021, the company had increased its Bitcoin holdings to 17,429 coins, valued at approximately $1.8 billion. In just two weeks, Riot Blockchain Inc. had added 6,000 Bitcoins to its inventory.
Debt financing has been a key strategy for MicroStrategy in growing its Bitcoin reserves. By September 30, 2021, MicroStrategy had amassed roughly $4.3 billion in aggregate principal from issued convertible notes. Prior to this, the company was debt-free.
MicroStrategy's approach to utilizing debt for Bitcoin acquisitions has proven successful, with the price of Bitcoin reaching all-time highs and increasing over 150% in the past year. This growth has further bolstered MicroStrategy's valuation, making it easier to raise additional funds.
Riot Blockchain Inc. aims to emulate MicroStrategy's approach, continuing its Bitcoin mining operations while exploring other means to raise capital for Bitcoin acquisitions. If the price of Bitcoin continues to rise, this could lead to substantial returns for shareholders.
The investment perspective for Riot Blockchain Inc. stock
While I generally caution against businesses that rely heavily on debt, investors should recognize the risks associated with Riot Blockchain Inc.'s strategy, or any stock investment, in this context.
However, Riot Blockchain Inc. has reported a year-to-date Bitcoin yield of 37%. This term, commonly used by several companies, refers to the percentage increase in Bitcoin holdings per diluted share. For investors hopeful of Riot Blockchain Inc. replicating MicroStrategy's strategy, this 37% yield is compelling.
When compared to MicroStrategy, Riot Blockchain Inc.'s Bitcoin yield appears weaker. However, at the time of writing, MicroStrategy had been implementing this strategy for a longer period. Considering more recent data, Saylor reported that MicroStrategy's Bitcoin yield was only 3% during the first week of December 2021.
Considering the current valuations, Riot Blockchain Inc. may have a better chance of achieving a higher Bitcoin yield than MicroStrategy, at least in the short term.
As long as Bitcoin's price maintains its strength or continues to rise, Riot Blockchain Inc. stock could be an attractive investment option. However, it is essential to acknowledge the risks associated with both companies' strategies, which rely on variables such as stability within the crypto space, market conditions, and institutional interest in funding debt.
Ultimately, Riot Blockchain Inc.'s strategy could prove fruitful, but investors should maintain a balanced perspective in light of the various risks and uncertainties. Additionally, those seeking to avoid debt risks can consider directly investing in Bitcoin instead.
The success of Riot Blockchain Inc.'s strategy to increase its Bitcoin holdings through debt financing, like MicroStrategy, could attract more investors interested in finance and investing in cryptocurrency. To further capitalize on this trend, Riot Blockchain Inc. should focus on improving its operations and efficiency in Bitcoin mining, ensuring higher yield and returns for its shareholders.
Investors keen on diversifying their portfolio might consider Riot Blockchain Inc.'s stock given its strategic focus on Bitcoin. However, it is crucial to thoroughly evaluate the company's financial health, as its reliance on Bitcoin yields and debt financing may expose it to potential risks in the volatile crypto market.
