Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Is Microsoft A Bargain After Shares Lost 25% Of Value?

By Investing.com (Haris Anwar/Investing.com)Stock MarketsMay 23, 2022 08:33
ng.investing.com/analysis/is-microsoft-a-bargain-after-shares-lost-25-of-value-113158
Is Microsoft A Bargain After Shares Lost 25% Of Value?
By Investing.com (Haris Anwar/Investing.com)   |  May 23, 2022 08:33
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Microsoft stock is down 25% this year amid investors’ rush to avoid high-growth stocks
  • MSFT is a high-quality, lower risk tech giant with a wide economic moat
  • The company’s most recent earnings report shows that the software maker continues to remain in a strong growth mode
  • If you’re interested in upgrading your search for new investing ideas, check out InvestingPro+

When markets take an ugly turn, it becomes harder to see what's wheat and what's chaff. During the current downturn, investors are selling everything indiscriminately, pushing the value of some of the best-run companies to the point where their stocks have become quite attractive for anyone maintaining a portfolio of long-term holdings.

The US’s second most valuable company, Microsoft (NASDAQ:MSFT), is one such example. Shares are down about 25% this year amid the rush by investors to avoid high-growth stocks at a time when the Federal Reserve is aggressively tightening monetary conditions—a move that could push the economy into a recession.

MSFT Weekly 2019-2022
MSFT Weekly 2019-2022

The current bearish spell comes after two years during which MSFT shares made some powerful gains. In 2021 alone, the software giant's stock gained almost 55%, almost double the expansion of the benchmark Nasdaq 100 Index.

How long the current sell-off continues is anybody’s guess, but there is a strong case to be made that Microsoft stock is a good buy-on-the-dip candidate.

The Redmond, Washington-based Microsoft is a high-quality, lower risk tech giant with a wide economic moat. The software maker is among the companies which are best positioned to weather economic disruptions as well as have the strongest pricing power to offset inflationary pressures.

Microsoft is well-entrenched in the digital economy due to its diversified business model that includes a suite of Office products, its cloud services and a gaming unit. The company’s cloud computing business has been the major driving force behind the stock’s 285% advance in the past five years—a period in which its CEO, Satya Nadella, branched out into new growth areas, mainly focusing on the cloud computing arena.

This unprecedented streak of gains, according to many analysts, has more room to run. One of the major factors behind this optimism is the industry-wide transition toward cloud computing that has only just started.

Microsoft’s Azure unit, which rents computing power to startups and larger businesses, is in a position to thrive for years to come. According to Wedbush Securities, global cloud services spending will approach $1 trillion over the next decade as businesses spend more on cloud computing.

Resilient In Recession

The company’s most recent earnings report shows that Microsoft continues to remain in a robust growth mode, navigating through supply chain disruptions and inflationary pressures. The Azure unit—behind only Amazon's (NASDAQ:AMZN) AWS web service group in the cloud infrastructure services arena—posted 46% growth in the company’s fiscal first quarter, matching the rate in the second quarter and meeting estimates.

The company also reported strength in commercial bookings, a measure of future revenue, with multi-year deals for Office 365, Microsoft 365 and Azure fueling growth. The contract renewals illustrate customer satisfaction with Microsoft’s cloud products.

Due to these strengths, Microsoft stock remains a favorite pick among analysts.

MSFT Analyst Consensus
MSFT Analyst Consensus

Source: Investing.com

In an Investing.com poll of 50 analysts surveyed, 47 rated the stock a 'buy' with an average price target that implies about 44% upside potential.

MSFT Fair Value
MSFT Fair Value

Source: InvestingPro

Similarly, according to a number of valuation models, including P/E or P/S multiples or terminal values, the average fair value for MSFT stock on InvestingPro stands at $312.71, a potential 24% upside from the current market value.

RBC, in a note last week, reiterated Microsoft as outperform, saying the company will prove resilient in a recession. Its note adds:

“We hosted virtual investor meetings with Microsoft investor relations. Our key takeaways include: 1) no change to macro/demand commentary, and we believe the business model would prove resilient in the case of a recession; 2) impact from salary increases are minimal, and we still expect margin expansion in FY23.”

Another investment bank, Barclays also reiterated Microsoft as overweight, saying the company’s Teams corporate-chat software is an ”$85 billion opportunity.” Its note said:

“Recently, we have seen increased investor nervousness regarding the future growth opportunities for the Microsoft Office franchise. However, we believe that recognizing the large opportunity the company has by just driving deeper Teams penetration should put these concerns to rest. In turn, this should reconfirm Microsoft as a premium investment in our software universe.”

Microsoft’s strong balance sheet and dividend program offer another solid reason for investors looking to take refuge in the current uncertain times. MSFT currently pays $0.62 quarterly for an annual yield of 0.93%. But with cash reserves exceeding $130 billion, the company has enough firepower to support its stock through share buybacks and dividend hikes.

Microsoft is just one of two publicly traded companies to earn top triple-A ratings from both Moody’s Investors Service and S&P Global Ratings, the two biggest credit companies.

Bottom Line

Though Microsoft, along with other tech giants, may decline further in the current market sell-off, this weakness should be taken as a buying opportunity in the case of MSFT shares. It offers a chance to take a position in an excellent business that for which there's little threat to its competitive advantage.

Interested in finding your next great idea? InvestingPro+ gives you the chance to screen through 135K+ stocks to find the fastest growing or most undervalued stocks in the world, with professional data, tools, and insights. Learn More »

Is Microsoft A Bargain After Shares Lost 25% Of Value?
 

Related Articles

Is Microsoft A Bargain After Shares Lost 25% Of Value?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email