Why Strive Stock Surged This Week

Shares of Strive (NASDAQ:ASST) soared 20.5% this week, according to data provided by S&P Global Market Intelligence. The stock's jump came as the company completed a $630 million preferred stock offering to fund its Bitcoin acquisition strategy.

Strive stock closed at $29.03 on Thursday, Oct. 22, up 20.5% from Friday, Oct. 16's close. Across those sessions, the S&P 500 was roughly flat at 0%.

Funding an expansion in Bitcoin holdings

Strive closed an initial public offering of 7 million shares of its 15% Series A Perpetual SATS Preferred Stock at $90 per share on Tuesday, generating $630 million in gross proceeds. The proceeds will fund general corporate purposes and additional Bitcoin purchases.

In a filing with regulators, the company disclosed it bought 4,045 Bitcoins between Oct. 12 and Oct. 16 at an average price of $82,803 per coin, raising its total treasury holdings to 36,818 Bitcoins worth roughly $3 billion.

Strive is an asset manager operating as a Bitcoin treasury company, raising capital through stock offerings to buy and hold Bitcoin as its core reserve asset. Beyond its investment management subsidiary, the firm issues specialized preferred equity to retail and institutional investors, using the proceeds to continuously buy more Bitcoin.

By selling perpetual preferred stock with fixed dividend yields, management aims to amplify per-share Bitcoin exposure for common equity holders without diluting ownership through direct sales of common stock alone.

However, funding asset purchases with fixed-yield preferred obligations adds leverage to the capital structure, leaving common shareholders exposed if coin prices drop. This week's upsized preferred offering resolves near-term funding questions by providing more cash to accelerate Strive's Bitcoin accumulation strategy.

What's next for Strive

Investors should watch the company's upcoming earnings report in November, as well as the start of daily SATS dividends on Nov. 9. Because the firm relies on issuing high-yield preferred equity to purchase non-yielding digital assets, permanent capital loss remains a key risk for common shareholders if Bitcoin experiences a deep downturn and preferred dividend obligations strain liquidity.

Peer treasury companies like Strategy face similar crypto exposure, but Strive's unique daily distribution schedule imposes tighter operational requirements.

Is Strive stock a buy?

Buying Bitcoin directly, or a Bitcoin exchange-traded fund (ETF), looks like a better deal than paying a premium for Strive stock right now. Counting its preferred stock, Strive is valued at about 1.4 times its Bitcoin, cash, and other treasury assets. That means investors are paying roughly 40% more than those assets are currently worth.

A sound strategy is to invest in treasury companies like Strive when their market caps are trading closer to the value of the Bitcoin and other treasury assets they hold. At near 1x net asset value (NAV), investors get the benefit of leveraged upside on the long-term appreciation of Bitcoin without overpaying. When the premium to NAV goes up, it's better to buy Bitcoin directly.

The main risk investors have to account for with treasury companies is the volatility. Bitcoin itself is highly volatile, but a treasury company like Strive is even more so. You're also betting on management's execution, which is another risk. With spot Bitcoin, there is no execution risk -- just the volatility of the asset itself.

For most Bitcoin investors, buying an ETF is the simpler option.

John Ballard has positions in Bitcoin and Strategy. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.