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I previously worked at an investment bank.

My job was to value companies for M&A purposes, tax purposes, and even some stranger reasons like divorce.

Yes, sometimes a married couple owned a business together and one spouse had to cut a check to the other in a divorce settlement. To figure out how big of a check to write, they came to me.

The work consisted of terribly long hours mostly spent creating complicated formulas in Microsoft Excel, but learning how to value companies has proven extremely useful when investing in the stock market.

Here’s what I mean…

One way to value a company is called the “Sum-of-the-Parts” approach.

This is exactly what it sounds like: if you’ve got a company with multiple business lines, you can value each one separately, and then add their values together to get the value of the overall company.

MicroStrategy (MSTR) can be used as a simple example of this.

MicroStrategy has two lines of business:

Business #1: MicroStrategy develops and sells enterprise analytics solutions, helping organizations analyze data for better decision-making.

Business #2: MicroStrategy owns $38 billion worth of Bitcoin.

Let’s start by valuing Business #1.

According to the company’s most recent filings, Business #1 had around $450 million in revenue over the last year and was not profitable.

Enterprise software companies like this typically trade around 5-10 times revenue.

We’ll split the difference here at 7.5 times revenue which means Business #1 is valued around $3.375 billion ($450 million times 7.5).

Now let’s value Business #2.

$38 billion worth of Bitcoin is worth $38 billion.

Now add Business #1 and Business #2 together and you get $41.375 billion. Subtract the $4.3 billion of debt on the company’s balance sheet and you get a market cap of $37.075 billion.

This means the stock market should value MicroStrategy somewhere around $37 billion.

Simple right?

Except the stock market currently values MicroStrategy at $88 billion…

Clearly, MicroStrategy’s enterprise business (Business #1) doesn’t matter to investors.

In fact, it seems like it doesn’t matter too much to MicroStrategy either, as it’s hardly talked about or referenced in quarterly calls or reports.

So essentially, MicroStrategy is a pile of Bitcoins worth $38 billion that stock market investors are currently buying/selling for $88 billion.

Yes… This makes no sense.

Going further, MicroStrategy knows this and is using the incredibly high demand for their stock as an opportunity to sell new shares on the open market.

This was a strategy popularized by GameStop and AMC during the meme frenzy of 2021.

If people want to buy your stock at ridiculous prices, sell it to them, they figured out.

You’ll dilute existing shareholders (they typically don’t like that), but you’ll get to pocket the money you make by selling new shares to stock market investors and use it to invest in your business, avoid bankruptcy, or in MicroStrategy’s case, buy more Bitcoin.

That’s right. MicroStrategy is currently selling $21 billion worth of new stock to investors (massively diluting existing shareholders) and using the proceeds to buy more Bitcoin.

Yet people continue to buy the stock despite this dilution and the fact it’s trading at more than twice the value of its underlying business and Bitcoin pile.

Again… This makes no sense.

If you want to buy Bitcoin, just buy Bitcoin… Not MicroStrategy which is really just an overvalued pile of Bitcoins anyway.

Investors in the latter will likely get burned in the near future – when the mainstream starts to catch on to how ridiculous MicroStrategy’s current valuation really is.

Please don’t be one of these investors.

Stick with The Million Mission as I continue bringing insights like this – and high-quality stocks actually worth buying – straight to your inbox.

No valuation experience necessary.