Is Microsoft Undervalued?

by Trefis Team
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No, as per Trefis Price estimate Microsoft‘s (NASDAQ:MSFT) stock has a fair value of $158, which is in line with the current market price. Microsoft is a technology company that makes money from the sale of software and hardware for consumer and enterprises. Their products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; and video games. They also design, manufacture, and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.

In this note we discuss our stock price valuation for Microsoft. You can look at our interactive dashboard analysis ~Microsoft’s valuation: Expensive or Cheap? ~ for more details, and also modify our forecasts for the company’s key metrics to understand how changes impact the company’s stock price.


#1. Estimating Microsoft’s Total Revenues:

  • Total Revenue increased from $96.6 billion in 2017 to $125.8 billion in 2019, and is expected to increase by 6.7% to $134.3 billion in 2020 (ended June 2020).
  • Our Interactive Dashboard Analysis, How Does Microsoft Make Money?, provides an in depth view of Microsoft’s Revenue.

#2. Deriving Microsoft’s Net Income:

  • Net Income rose from $25.5 billion in 2017 to $39.2 billion in 2019, and is expected to be around $43 billion in 2020.
  • This rise will likely be because of higher revenues and better margins.

#3. Determining Microsoft’s EPS:

  • EPS rose from $3.25 in 2017 to $5.06 in 2019, and we estimate it to be $5.61 in 2020.
  • EPS rise in 2018 can be attributed to higher Net Income and lower Shares outstanding.

#4. Estimating Microsoft’s Share Price:

Our Price Estimate of $158 for Microsoft’s Stock is based on our Detailed Valuation Model, and implies a 28.1x P/E Multiple on expected 2020 EPS of $5.61. Our interactive dashboard captures how Microsoft compares with its competitors Apple and Oracle in terms of Revenue and P/E multiple.



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