Microsoft (MSFT) stock price has done well in the past decades, helping propel it into the second-biggest company in the world with a market cap of over $3.2 trillion. It has jumped by over 220% in the last five years and over 750,000% since going public in the 1980s.
Analysts at Morningstar estimate that the stock is worth about $490, 14% above its current level. The average estimate by analysts tracked by Yahoo Finance is $496, 15% higher than this week’s level.
Microsoft has immense product breadth
In a report, Morningstar’s Susan Dziubinski noted that Microsoft has an immense breadth because of its numerous services.
Today, the company’s products are used by a large number of companies from around the world.
The most basic of these products is Microsoft Windows, which has a 71% market share globally. It is more popular than other operating systems in PCs like macOS, Linux, and Chrome OS.
Microsoft has established itself in this industry, and while its market share has fallen slightly, chances are that it will be the most dominant player.
The other basic Microsoft product is Office, which is used by most people. While products like Google Docs, Dropbox Paper, and Only Office have become more popular, most people will continue using Office for a long time.
While Microsoft Bing is a distance second to Google, it is a big platform that brought in over $12 billion in 2022, a figure that has grown.
Microsoft is also a leading player in other industries. Teams, its Zoom Video alternative, has gained strong market share in the industry. The company has also become a big Salesforce alternative with its Microsoft Dynamics solution. This solution brought in over $5.4 billion in revenue last year.
Microsoft has also become a top player in the artificial intelligence industry. In addition to its own-developed AI solutions, it has a partnership with OpenAI, the creator of ChatGPT. The company invested $10 billion in the company in 2023. Its investment is now more valuable as the company seeks to raise funds at a $150 billion valuation.
Most importantly, Microsoft is one of the most important companies globally since it has the second-biggest market share in the cloud computing industry after Amazon.
Microsoft is doing well
The most recent financial results showed that Microsoft was doing well. These numbers showed that its revenue rose by 15% to over $64 billion. Its operating income soared by 15% to $27.9 billion while its net income jumped to $22 billion.
Microsoft’s business did well across all its segments, helped by cloud computing, whose revenue jumped by 19% to over $28.5 billion.
Its productivity and business processes, which Morningstar mentioned, rose by 11% to over $20.3 billion while its personal computing rose by 14% to $15.9 billion. LinkedIn, which Microsoft bought a few years ago, rose by 10%.
Its annual results were strong, with annual revenue peaking at $245.1 billion, a 16% increase from the previous year. This growth was partially driven by its Xbox content and service business because of its Activision Blizzard buyout.
Microsoft is a great rewarder of shareholders. It returned $8.4 billion to shareholders through share buybacks and dividends. And this week, it announced more measures to return excess cash to investors.
It boosted its dividend by 10% to 83 cents and launched a new $60 billion in share repurchases program. Over the years, these repurchases have pushed the number of outstanding shares from 7.73 billion to 7.43 billion.
This performance means that Microsoft is a future dividend aristocrat since it has hiked dividends in the past 19 years.
A key concern among investors about Microsoft is whether its $3.2 trillion valuation can be justified. Besides, this valuation is 13.19x 2024 sales, which is higher than the industry median of 2.85.
A closer look at other valuation metrics shows that Microsoft is not all that overvalued. It trades at a forward P/E multiple of 33, higher than the sector median of 28. This multiple is in line with its five-year average. It is also a premium because of its strong growth and higher margins since its net profit margin stands at 36.
Microsoft stock price analysis
The daily chart shows that the MSFT stock price peaked at $467 in July and then pulled back to a low of $385. It has now bounced back and was trading at $430.
The stock has remained above the 50-day Exponential Moving Average (EMA), meaning that bulls are in control.
However, there are signs that it has formed a head and shoulders chart pattern, a popular reversal sign. This means that it could see some volatility in the coming weeks. However, in the long-term, the stock will likely continue rising. Morningstar’s Microsoft forecast will be confirmed if it flips the all-time high of $467.
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