Over the past six months, Strategy’s shares (currently trading at $165.50) have posted a disappointing 7.6% loss, well below the S&P 500’s 10.8% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Strategy, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Strategy Will Underperform?
Even with the cheaper entry price, we're swiping left on Strategy for now. Here are three reasons there are better opportunities than MSTR and a stock we'd rather own.
Note that our analysis is rooted in fundamentals, not Bitcoin-driven technicals.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Strategy’s billings came in at $83.17 million in Q1, and over the last four quarters, its year-on-year growth averaged 10.2%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Shrinking Operating Margin
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Looking at the trend in its profitability, Strategy’s operating margin decreased significantly over the last two years. Strategy’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 2,853%.
3. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
While Strategy posted positive free cash flow this quarter, the broader story hasn’t been so clean. Strategy’s demanding reinvestments have drained its resources over the last year, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 18%, meaning it lit $18.00 of cash on fire for every $100 in revenue.
Final Judgment
Strategy falls short of our quality standards. Following the recent decline, the stock trades at 109.6× forward price-to-sales (or $165.50 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of Strategy
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