Microsoft’s (NASDAQ:MSFT) stock fell nearly 11% just within the last 5 trading days, accompanied by nearly a 12% broader market (S&P 500) decline. What really happened? It seems that the downfall is a result of investors raising concerns over lofty valuation of technology stocks, which have risen significantly despite the global economy suffering. That’s reasonable, but here is the real question – should you consider investing in Microsoft now? How likely is it that this recent downward momentum will continue? We help you make this decision by putting Microsoft’s recent stock movement in the context of its changed position in the market, trends in the underlying fundamentals, and prediction of our machine learning algorithm. Our overall assessment is that Microsoft may still have some steam left, especially if you are looking at a long term bet. Our dashboard Big Movers: Microsoft Moved -10.8% – What Next? lays this out succinctly.
What relative positioning suggests: Do you believe in the philosophy of relative value investing? Then our market positioning perspective could help you. Including this recent move, Microsoft has returned nearly 45% to its investors. Does it have more room left? One way to look at it, is how expensive the stock has become now. While Microsoft’s trailing P/E multiple has decreased more than 10% to nearly 34.8 as a result of the recent move, it still stands 14% higher than the year beginning value, suggesting the stock becoming slightly expensive. A peer comparison indicates that Microsoft may not have too much room to grow. Compared to Microsoft’s P/E multiple of 34.8, the figure for its peers AAPL, GOOG, and ORCL stands at 34, 30.7, and 17.5 respectively.
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What fundamentals suggest: Are you the kind of investor who likes to invest and forget? Then underlying financials are important to you, as you want to make choices that will give healthy returns in long run. Microsoft’s recent market move is at odds with its long-term price trend; the company has returned as massive 147% between 2017 and now. Does the underlying financial growth support this? We note that Microsoft’s revenue increased 30.3% from $96,571 Mil in 2017 to $125,843 Mil in 2019. For the last 12 months, this figure stood at $143,015 Mil, implying a very healthy increase of 13.6% over 2019 numbers. Even at this scale, the company is growing in double-digits! But what about its profitability? Microsoft’s net margins have increased from 26.4% in 2017 to 31.2% in 2019, and sustained this level in the last 12 months. So the company has become more profitable than before. This gives confidence in its ability to sustain value creation for long-term investors.
What machine learning algorithm suggests: More interested in short term returns? Then you might want to consider the output of our machine learning algorithm in your trading decision. We continuously analyze past patterns in stock movements to predict near term behavior, keeping our users updated on near term perspective for stocks with meaningful market moves. Our engine suggests a nearly 23% probability of Microsoft moving up by 10% in the next 21 trading days, but a higher 33% probability of it falling another 5%. Curious to know how it works? Check out this dashboard where you can play around with different levels of movements for Microsoft to understand near term return probabilities.
So, Microsoft might still be okay amid the broader technology sell off. But, what if you’re looking for a more balanced portfolio instead? Here’s a top quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.