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Meme ETF: This Under-The-Radar Stock Is Up 56% in 2023

Meme ETF has been performing well in 2023. Credit should be given to one particular stock that has already gained 56% YTD, outperforming names like GME and AMC.
  • Roundhill’s Meme ETF  (MEME)  has been doing well so far in 2023. The fund has been up 17% YTD, after a pitiful year of performance in 2022.
  • At the top of MEME’s holdings list is a stock that has already returned 56% so far this year. Today, we take a closer look at MicroStrategy stock  (MSTR) - Get Free Report.
  • Following the recent run, can MSTR stock climb further from current levels?
Figure 1: Meme ETF: This Under-The-Radar Stock Is Up 56% in 2023

Figure 1: Meme ETF: This Under-The-Radar Stock Is Up 56% in 2023

What Meme ETF Looks Like Today

We, at Wall Street Memes, like to follow Roundhill’s Meme ETF closely. For the benefit of those unfamiliar with it, the fund invests in the 25 meme stocks that best meet the fund manager’s stock-picking criteria:

  • A “social media activity score” is assigned to each stock within a broad pool. The scoring system helps to identify stocks that have been “hot” on the main social media platforms.
  • The top 50 most popular stocks are singled out, while the rest is discarded.
  • Within the top 50, the 25 stocks with the most elevated short interest are selected. As a reminder, heavily shorted stocks tend to be most susceptible to short squeezes.
  • The process is repeated every 14 days, when the list of 25 stocks is refreshed.

Currently, the largest holding in the Meme ETF is MicroStrategy stock, at a portfolio allocation of 5.7%. For reference, meme darlings AMC stock  (AMC) - Get Free Report and GameStop stock  (GME) - Get Free Report currently represent a combined 9.1% of the Meme ETF portfolio.

MicroStrategy Who?

When I first glanced at this week’s Meme ETF allocations, the top holding immediately caught my attention. I have not followed MicroStrategy closely at all, despite its relatively large market cap of $2.8 billion and over 1 million shares traded each day, according to Seeking Alpha.

A quick look at ApeWisdom (see table below) suggests that I am not alone. Among the top ten most followed stocks of the moment, one can easily find some of the usual suspects: AMC, Tesla  (TSLA) - Get Free Report, and Bed Bath and Beyond  (BBBY) - Get Free Report.

But as of my last check, MSTR stock was ranked only #171.

Figure 2: Most followed stocks on Reddit.

Figure 2: Most followed stocks on Reddit.

MSTR Stock On Fire: Up 56% in 2023

Only because MicroStrategy is not as well-known a meme stock as AMC and GME does not mean that it can’t produce sizable gains.

Although MSTR stock has been down about 53% in the past 12 months, shares have climbed a whopping 56% so far in 2023. The stock traded as low as $137 within the past month but exchanged hands at nearly $240 in the early hours of January 18, before pulling back.

Looking further back, notice below (blue line, chart provided by Stock Rover) how MSTR stock’s price behavior has resembled the movements in AMC and GME.

In fact, MicroStrategy stock even showcased mooning potential before GameStop did: the former was up 105% in November 2020 vs. GME’s 58% gains in the same month. Only two months later, however, GME stock took off, returning 1,625% in January 2021.

Figure 3: MSTR, AMC and GME returns.

Figure 3: MSTR, AMC and GME returns.

What is MicroStrategy?

MicroStrategy describes itself as “the largest independent publicly-traded business intelligence company, with the leading enterprise analytics platform”. More to the point, it is an enterprise and government software company, but with a twist: MicroStrategy invests heavily in Bitcoin.

According to its most recent earnings presentation, MicroStrategy holds between $2 billion and $2.5 billion worth of Bitcoin (see below). Interestingly, these figures are just shy of the company’s total market value of around $2.7 billion.

Figure 4: MicroStrategy Bitcoin holdings.

Figure 4: MicroStrategy Bitcoin holdings.

Operationally, MicroStrategy does not impress much. The company’s revenues declined 1% YOY over the past 12 months, although unfavorable FX movements can be partially to blame. Gross and operating margins have also been under pressure lately.

Can MSTR Stock Skyrocket?

I strongly suspect that MicroStrategy’s core business has mattered and will matter very little for MSTR stock’s performance. In fact, the recent surge in share price seems much more closely associated with (1) the company’s acquisition of more Bitcoin and (2) the rise in crypto price.

The following graph makes it visually clear: historically, MSTR stock has done well when the value of Bitcoin rises; and poorly when the crypto sinks. The extra kick: MSTR stock is even more volatile than Bitcoin, making it a “leveraged bet” of sorts.

Figure 5: MSTR vs. Bitcoin returns.

Figure 5: MSTR vs. Bitcoin returns.

Tight correlations with crypto prices and very high volatility mean that, yes: MSTR stock could still skyrocket from current levels. As a bonus, note that the short-interest ratio is currently very high at 41%, which means that a short squeeze is always imminent.

Keep in mind, of course, that high potential rewards are likely to come associated with high risks as well. Size your bets accordingly.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)