Foolish thoughts It’s easy to fall into the trap of being either overly optimistic or overly pessimistic on a particular stock. Microsoft has a strong business that continues to grow, but single-digit earnings growth is likely to be the best investors can hope for. A P/E ratio of 15, adjusted for net cash, puts Microsoft’s fair value at about $47 per share, a bit higher than where it trades today. Microsoft is certainly not the bargain that it was a few years ago, but it’s still a very solid company trading at a fair price. Valuing stocks is a very rough process, and there’s no real “right” answer. Different interpretations of future growth prospects could lead to radically different results, but being able to come up with a conservative estimate based on realistic assumptions is an important skill to have.
With its hands in so many businesses, Microsoft has rivals large and small across many sub-sectors. At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict
this post may contain references to products from our partners. But the price of a stock and the value of a stock are two completely different things. The price is simply the price at which the last transaction in Microsoft stock took place, while the value depends on the earnings power and future prospects of the company. To quote Warren Buffett, “Price is what you pay. Value is what you get.”
First, the commercial side of the business is larger and far more profitable than the consumer side. Selling software licenses to enterprise customers is by far the largest component of Microsoft’s gross profit, and the good news for the company is that this part of the business has been growing. In fiscal year 2014, commercial licensing revenue grew by about 6%, with gross profit growing by 6.5%.
It generates billions in profit every year and is truly a blue chip stock. Its strong position in many markets and strong balance sheet make it a fit for almost any investor. Also, Microsoft pays a dividend, making it a likely candidate for investors looking for a regular cash payout. Given Microsoft’s dominant position https://1investing.in/ in the enterprise software industry, and the fact that the company is managing to consistently grow that business, a P/E ratio of 15 seems perfectly reasonable. Mid-single digit annual earnings going forward should be achievable, and analysts are expecting about 7% annual earnings growth over the next five years.
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Steve Lohr covered Microsoft’s antitrust trial in the 1990s. Discounted offers are only available to new members. Create a list of the investments you want to track.
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Analyzing a company’s competitive position and financials is probably the single hardest part of buying the stock, but it’s also the most important. The best place to begin is with the company’s Form 10-K, which is the annual report that all publicly traded companies must file with the SEC. It seems like Microsoft is everywhere these days, and it goes beyond just office productivity software at this Washington-based technology company. In addition to its Windows products and Xbox games, Microsoft owns communications app Skype, social media site LinkedIn and recently announced plans to acquire video game maker Activision Blizzard. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. We are an independent, advertising-supported comparison service.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. In fiscal year 2014, Microsoft recorded a net income of about $22 billion, or $2.63 per share. On the balance sheet, the company has $63 billion in net cash, equivalent to $7.50 per share. The value of Microsoft is this excess cash, plus earnings times some multiple, which depends on the reliability and rate of growth of earnings in the future. Microsoft’s phone segment, created after the acquisition of Nokia’s phone operations, is currently a drag on the company’s earnings, and hardware like the Surface tablet and the Xbox One have had moderate success at best.
How Much Is Microsoft Stock Worth?
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- Alongside Azure, the success of Microsoft’s productivity programs diversifies its position in AI and bolsters its long-term prospects in the sector.
Probably not, since it would require growth well beyond what seems plausible. Also probably not, since cash would cover nearly half of this and Microsoft has serious competitive advantages in the enterprise software industry. Bankrate’s editorial team writes on behalf of YOU – the reader.
Data are provided ‘as is’ for informational purposes only and are not intended for trading purposes. Data may be intentionally delayed pursuant to supplier requirements. In 1996, it entered the media business in a partnership with NBC, setting up the cable channel, MSNBC, and a website, msnbc.com (Microsoft shed its stakes in both, years later). About 90 percent of personal computers used Microsoft’s Windows software, the main gateway to the young internet, and Microsoft controlled the software and services that were featured on those Windows PC screens. In its lawsuit against Google, the Justice Department points to the Microsoft case and that company’s tactics in the 1990s.
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If you’re buying just a few shares then you’re likely best off sticking with a market order. Even if you pay a little bit more now for a market order, it won’t affect the long-term performance much, if the stock continues to perform well. As of September 2023 Microsoft has a market cap of $2.489 Trillion. This makes Microsoft the world’s second most valuable company by market cap according to our data. The market capitalization, commonly called market cap, is the total market value of a publicly traded company’s outstanding shares and is commonly used to measure how much a company is worth.
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- The value of Microsoft is this excess cash, plus earnings times some multiple, which depends on the reliability and rate of growth of earnings in the future.
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Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data. The Microsoft case also had a huge personal dimension because of the stature of Mr. Gates. He was the world’s richest person, and during the course of the trial, as the stock market surged, Mr. Gates’s stake in Microsoft soared to $100 billion. In 1995, a researcher at the Massachusetts Institute of Technology built a website, called the Bill Gates Personal Wealth Clock, to track Mr. Gates’s net worth.
Committing to holding the stock for three-to-five years is important. You’d hate to have to sell the stock when it’s near a low only to watch it rebound much higher after you exited the position. By sticking to a long-term plan, you’ll be able to ride out the ups and downs of the stock. Alongside Azure, the success of Microsoft’s productivity programs diversifies its position in AI and bolsters its long-term prospects in the sector. Tech stocks fell out of favor in 2022, with the Nasdaq-100 technology sector index plunging 40% throughout the year.