You can often find a direct correlation between earnings estimate revisions and share prices. As analysts boost profit forecasts, the stock invariably follows suit. This is why management at MicroStrategy, Inc. (Nasdaq: MSTR) recently embarked on a far-reaching cost-cutting plan.

#-ad_banner-#​MicroStrategy operates in a field known as Business Intelligence, providing a range of consulting services and software programs that help companies analyze and manage enterprise data.

Investors knew that the company carried far too much overhead relative to its peers. In July, management set a goal to reduce annual expenses by $40 million. By October, they boosted that savings target to around $75 million.

“We’re trying to run a much tighter ship and challenge basically every single dollar we’re spending,” said CFO Douglas Thede on the company’s third-quarter conference call. Simply shaving off the fat, which should help profit margins move back in tandem with the peer group, has been predictably well-received on Wall Street.

MicroStrategy’s belt-tightening came in the form of eliminating 800 jobs (20% of the workforce), consolidating administrative overlap, reducing resources in China and shuttering satellite offices in Russia and other countries.

The bottom-line impact is self-evident. Over the past 90 days, analysts doubled their 2015 earnings per share forecasts to around $5 from $2.50. Shares trade for near 35 times that 2015 revised EPS forecast. This is not unusual considering MicroStrategy operates in the field of “Big Data.” Rivals such as Splunk, Inc. (Nasdaq: SPLK) and Tableau Software, Inc. (Nasdaq: DATA) also sport robust forward multiples. That’s explained away by the fact that these firms are in high-growth mode, positioned to boost sales by 30% or 40% in 2015.

Yet this is where the comparison with peers starts to break down. MicroStrategy has been, and will continue to be, a slow-growth company.

That anemic level of growth may explain why management is taking an increasingly aggressive approach toward cost cuts.

The “downward trend in the growth rate for billings (as measured by revenue plus the change in deferred revenue on the cash flow statement) helps explain why management appears willing to make cuts so quickly after years of investments,” wrote James Gilman, an analyst with Drexel Hamilton, in a recent report.

He also questions how management can simultaneously boost growth prospects while reducing investments in sales, product development and other key support areas. Gilman thinks that management’s cost cuts may prove to be too aggressive, and could be reversed if the company doesn’t better retain existing customers.

In 2013, MicroStrategy’s customer support renewal rates hovered in the mid-to-upper 90s, but have slid for five-straight quarters to a recent 88%. Gilman’s $90 price target, based on a discounted cash flow analysis, is a little more than half the current share price.

MicroStrategy’s sales growth challenges may not be a function of weak products or poor sales execution, but rather better execution by rivals. Not only are younger firms mentioned above creating deep industry buzz, but much bigger players, such as Oracle Corp. (Nasdaq: ORCL), International Business Machines Corp. (NYSE: IBM) and SAP (NYSE: SAP), are pulling out all the stops to preserve their own customer bases.

It’s a very competitive niche, and MicroStrategy’s decision to retrench may prove ill-timed. At some point, perhaps sooner rather than later, investors will come to see the disconnect between this stock’s lush valuation and its poor competitive positioning.

Risks To Consider: As an upside risk, MicroStrategy may become acquisition fodder for a larger tech consulting firm seeking a toehold in the business intelligence niche.

Action To Take –> Short sellers tend to focus on companies with problems that lurk beneath the surface. MSTR’s falling license renewal rates could be a harbinger of downward sales revisions in coming quarters. If that happens, then shares are likely worth no more than 20 times projected 2015 EPS, or around $95.

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