Last update on 2024-06-07

MicroStrategy (MSTR) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Analyze MicroStrategy's 2023 Piotroski F-Score of 4/9, assessing profitability, liquidity, and efficiency metrics for investment insights.

Short Analysis - Piotroski Score: 4

We're running MicroStrategy (MSTR) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

MicroStrategy (MSTR)'s Piotroski F-Score is 4 out of 9, indicating a moderate financial health status based on several criteria involving profitability, liquidity, and leverage. Profitability aspects, such as positive net income, positive cash flow from operations, and improved Return on Assets (ROA), have improved, each contributing positively to the score. However, operating cash flow is considerably lower than net income, hinting at potential earnings quality issues. In terms of liquidity, the company shows a positive trend in reducing leverage but a marginal decline in current ratio, indicating weaker short-term financial health. From an operational perspective, gross margin remains strong, although asset turnover continues to decline, reflecting poorer efficiency in utilizing assets to generate revenue. Share dilution due to increased outstanding shares negatively impacts shareholder value.

Insights for Value Investors Seeking Stable Income

Given the Piotroski F-Score of 4 out of 9, MicroStrategy (MSTR) is in moderate financial health but faces several concerns, especially regarding earnings quality and asset efficiency. Investors should be cautious and conduct further research into these specific areas before making investment decisions. The stock might have some positive attributes, but the moderate score and its historical volatility suggest potential risks. Evaluating the sustainability of recent financial improvements and understanding the reasons behind the declining asset turnover and share dilution are crucial. Junior investors or those looking for more stable investments might want to consider stocks with higher Piotroski scores.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of MicroStrategy (MSTR)

Company has a positive net income?

Net income reflects the company's profitability. A positive net income suggests company growth and profitability, while a negative net income can be a sign of financial distress.

For MicroStrategy (MSTR), the net income for 2023 stands at $429,121,000, which is indeed positive. This marks a significant turnaround from the previous year's net income of -$1,469,797,000. Over the last 20 years, MicroStrategy's net income has seen considerable volatility. For example, in the years 2020 and 2021, the company reported net incomes of -$7,524,000 and -$535,480,000, respectively. Therefore, 2023's positive net income is a strong indicator of recovery and is likely to add 1 point when assessing the company's financial health using the Piotroski score. However, given the historical fluctuations, the sustainability of this positive trend remains a point of consideration.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is crucial as it indicates the cash a company generates from its normal business operations, reflecting its liquidity and operational efficiency.

MicroStrategy (MSTR) reported a CFO of $12.71 million in 2023, reflecting a positive cash flow from operations. This positive figure contributes 1 point to its Piotroski Score, emphasizing an improved liquidity position and operational efficiency. Historically, the CFO trends for MicroStrategy show considerable volatility, peaking as high as $149.7 million in 2015 and dropping to negative figures in some years, such as 2018 and 2020, with a particularly low $3.21 million in 2021. The upward movement from the $3.21 million in 2021 to $12.71 million in 2023 highlights a recovery in operational efficiency. Overall, this positive trend is favorable for the company’s financial health.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) gauges a company's efficiency in generating profits from its assets year over year. A positive change indicates improving efficiency.

MicroStrategy's ROA significantly improved from -0.4926 in 2022 to 0.1197 in 2023, a noteworthy turnaround. This favorable change earns the company 1 point in the Piotroski score. Factors contributing to this improvement could include better asset utilization and cost management. While noteworthy, it's essential to consider the industry median ROA, which stands substantially higher at 0.6741 in 2023, suggesting room for further improvement in relative terms.

Operating Cashflow are higher than Netincome?

This criterion assesses whether a company is generating more cash from operations than it is reporting as net income, indicating strong earnings quality.

In 2023, MicroStrategy (MSTR) reported an Operating Cash Flow (OCF) of $12.71 million, significantly lower than its Net Income of $429.12 million. This results in a score of 0 for this criterion, implying weaker earnings quality for the year. Over the last 20 years, MSTR's OCF shows considerable volatility, with peaks and valleys, influenced by various operational factors and market conditions. The disparity between OCF and Net Income in 2023 hints at potential underlying issues or adjustments impacting financial quality. These figures suggest scrutiny is warranted.

Liquidity of MicroStrategy (MSTR)

Leverage is declining?

Change in Leverage is considered as Leverage for 2023 stands at 0.471 versus 1.0148 in 2022.

Leverage, commonly measured by the debt-to-equity ratio, has notably decreased from 1.0148 in 2022 to 0.471 in 2023 for MicroStrategy (MSTR). This reduction signifies that the company has considerably downsized its borrowing relative to its equity, reflecting improved financial health and reduced financial risk. Given the past two decades, where the leverage ratios fluctuated but remained relatively low until a soaring high in recent years, this downturn marks a significant change in financial strategy or capitalization structure, ultimately earning a score of 1 in the Piotroski F-Score analysis.

Current Ratio is growing?

Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. A ratio less than 1 indicates more liabilities than assets.

The Current Ratio for MicroStrategy has slightly decreased from 0.8335 in 2022 to 0.8287 in 2023, resulting in a decrease of 0.0048. This downward trend, although marginal, signifies weaker short-term financial health and liquidity. Historically, the Current Ratio for MSTR has been much higher, with peaks above 3 in the years between 2013 and 2018. Comparatively, the industry median Current Ratio for 2023 stands at 1.7519, which is significantly higher than MSTR's. Hence, this trend is negative for MicroStrategy and warrants a score of 0.

Number of shares not diluted?

Change in shares outstanding is crucial as it impacts the value of existing shares, capital structure, and overall shareholder value.

Between 2022 and 2023, MicroStrategy's shares outstanding increased from 11.32 million to 13.67 million. This marks an increase in the total number of shares. When juxtaposed with historical data, we observe a peak in 2004, followed by a gradual decline reaching its nadir in 2020 at approximately 9.68 million shares. The subsequent years show volatility, culminating in the recent increase. According to the Piotroski score criterion, an increase in shares outstanding signifies dilution, setting this criterion to 0. Seemingly, MicroStrategy has issued new shares, which might be aimed at raising capital, but it dilutes existing shareholder value. Hence, this trend is considered negative under this criterion.

Operating of MicroStrategy (MSTR)

Cross Margin is growing?

Gross Margin

For MicroStrategy (MSTR), the Gross Margin has seen a decrease from 0.7937 in 2022 to 0.7785 in 2023. This signifies a reduction in profitability at its core operations level. Although this single data point reflects a decrease, it's essential to interpret this within the broader context of historical performance and industry trends. Over a 20-year period, MicroStrategy has generally maintained a Gross Margin above the industry's median, implying stronger sales efficiency and a competitive edge in managing production costs. While this year's slight decline is a negative indicator for profitability, it is still above the industry median of 0.6741 in 2023, suggesting that MicroStrategy continues to be relatively efficient in its cost structure compared to peers. This trend, coupled with previous years' stability, still reflects overall robust operational performance.

Asset Turnover Ratio is growing?

The Asset Turnover ratio is crucial as it measures a company’s efficiency in using its assets to generate sales revenue.

MicroStrategy (MSTR) has seen a consistent decline in its Asset Turnover ratio over the past 20 years, dropping significantly from 1.8039 in 2003 to just 0.1384 in 2023. This continued decline suggests that the company is becoming increasingly less efficient at using its assets to generate sales revenue. In comparison to the previous year, the Asset Turnover has decreased from 0.1673 in 2022 to 0.1384 in 2023, further emphasizing the downward trend. This is a worrying sign and indicates a 0 score for this criterion, as a decrease in Asset Turnover signifies deteriorating asset efficiency.