Bear of the Day: MicroStrategy (MSTR) - Bear of the Day

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MicroStrategy ( MSTR ) recently delivered weak second quarter results, prompting analysts to revise their estimates significantly lower for both 2013 and 2014. It was also the company's 4th straight earnings miss.

It is a Zacks Rank #5 (Strong Sell) stock.

Despite the poor earnings momentum, shares trade at a whopping 67x forward earnings. Investors should consider avoiding this stock until its earnings momentum improves.


MicroStrategy provides enterprise software platforms. Its products include: the MicroStrategy Analytics Platform; the MicroStrategy Mobile App Platform; the MicroStrategy Identity Platform, and the MicroStrategy Loyalty Platform. It was founded in 1989 and has a market cap of $1.2 billion.

Second Quarter Results

MicroStrategy reported disappointing second quarter results on July 29. The company reported a loss of -14 cents per share, which was well below the Zacks Consensus Estimate calling for +39 cents. It was also well below earnings of +65 cents per share in the same quarter last year.

Total revenues increased 2% to $137.9 million, below the consensus of $140.0 million. Product licenses revenues declined 4% year-over-year while product support and other services revenues rose 4%.

The gross profit margin declined 120 basis points to 73.6%. And despite the modest rise in revenue, operating expenses jumped 14% year-over-year.

Estimates Fall

Following the second quarter miss, analysts revised their estimates significantly lower for both 2013 and 2014, sending the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2013 is now 44 cents, down from $1.75 just 60 days ago. The 2014 consensus is $2.01, down from $3.33 over the same period.

You can see the negative earnings momentum over the last several months in the company's 'Price & Consensus' chart:

Premium Valuation

Despite the negative earnings momentum, MicroStrategy trades at a 12-month forward P/E of 67, which is well above its 10-year historical median of 19 and the industry median of 16.

The Bottom Line

With negative earnings momentum and premium valuation, investors should consider avoiding this Zacks Rank #5 (Strong Sell) stock until its earnings momentum turns around.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service .



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

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