Microsoft Corporation (NASDAQ:MSFT)
In a world where Apple’s iPhone has become ubiquitous, it’s easy to see Microsoft as somewhat of a technological dinosaur. Nowadays, Macs seem far more common in coffee shops and student halls across the globe, but that’s only part of the story. After all, Bill Gates hasn’t become one of the world’s richest people by owning only 4% of an ailing company. Be under no illusion, MSFT is still a huge player in the market. So, with this in mind, should you look to buy the company’s stock? In this post, we take a look.
The Overall State of MSFT
In short, Microsoft still dominates the computing markets thanks to the quality and ubiquity of its PC operating systems and software. However, this is only part of the story when it comes to the company.
This is because, under CEO Satya Nadella, it has gone back to what it once was around a decade ago - a great tech innovator.
Part of Nadella’s business philosophy has been to ‘trim the fat’ off of the organization. As such, she’s focused almost entirely on its core Office business. This means that the company's focus is now almost entirely on the business sector, with particular attention paid to cloud-based solutions and the office software unit.
Of course, the big news that’s come out of MSFT businesses. Interestingly, this is Microsoft’s first real foray into social, but, even more importantly, it also gives the company a huge amount of insight into the business world and a great deal of data to mine thanks to the company’s huge user base of 450 million people. All of this can be used to better inform the Office package.
So, should I buy shares? Or is now the time to sell as it’s reached its peak? Let’s look at both arguments.
Buy
MSFT is a cash juggernaut, and it also has a reasonably high payout ratio of around 65%. In addition to this, it has also grown its dividend by 450% since it began paying out a regular dividend back in 2004, over a decade ago.
This growth isn’t quite as robust as it once was, but it is still far better than you get from most staples and utility companies. Some believe that Microsoft has even managed to turn itself into a dividend machine.
Now that MSFT has become a dominant cloud company, Microsoft’s share price has gone through the roof. Back at the end of August, Microsoft’s share price hit all-time highs, reaching $58.70.
In the coming year, Microsoft is expected to earn 68 cents per share on revenue of $21.54 billion in the first fiscal quarter that ends in September. So, if you buy now, it appears as though Microsoft’s price could rise further.
Sell
However, in spite of this, some still believe that the stock’s price could actually fall in the coming years, and that now is the time to sell.
Sales of Microsoft’s products have declined in the last four quarters, and annual revenue for 2016 has declined by 8.8%, down to $85.32 billion from $93.58 billion the previous year.
Much of this is because of deferred Windows 10 revenues, and MSFT has also wriggled out of the feature phone business. It also now has LinkedIn (NYSE:LNKD) to look after, and there could be teething issues.
At the start of September, Microsoft’s stock also fell by $1 from the all-time high, which is leaving some analysts wondering whether it has hit a ceiling.
Conclusions
On the balance of evidence, however, it appears as though now is the time to invest in MSFT stock, with some analysts predicting 11.4% growth in adjusted earnings per share next year. The stock is also trading at about 18 times forward earnings, so it’s effectively trading at a discount.
As a result, now is the time to make an investment in Microsoft stock.