microsoft (MSFT) has recently been one of the most searched stocks on Zacks.com. So it’s worth looking at some facts that could shape the stock’s performance in the short term.
The software maker’s stock returned -5.9% over the past month compared to -2.6% for the Zacks S&P 500. The Zacks Computer-Software industry, which includes Microsoft, has declined 4.7% in this period. The key question here is where the stock is likely to go in the short term.
While media releases and rumors about significant changes in a company’s business prospects typically cause its stock to “trend” and lead to immediate price movements, there are some fundamentals that ultimately govern buy-and-hold decisions. There are always facts.
Regarding revisions to performance forecasts
At Zacks, we prioritize evaluating changes in company earnings estimates rather than focusing on anything else. This is because we believe that the fair value of a stock is determined by the present value of its future income stream.
Our analysis is fundamentally based on how the sell-side analysts covering a given stock are revising their earnings estimates to account for the latest business trends. As a company’s earnings expectations rise, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, which causes the stock price to rise. For this reason, empirical research has shown that there is a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Microsoft is expected to post earnings of $2.81 per share, representing a 14.7% increase from the year-ago period. The Zacks Consensus Estimate has changed -0.1% over the past 30 days.
The consensus earnings estimate for the current fiscal year of $11.61 represents a year-over-year change of +18.4%. This estimate has changed -0.2% over the past 30 days.
Next year’s consensus earnings estimate of $13.15 represents a +13.3% change from the revenue Microsoft was expected to report a year ago. Estimates have not changed over the past month.
The Zacks Rank, a proprietary stock evaluation tool with an impressive, outside-audited track record of impressive results, leverages the power of earnings estimate revisions to be a more conclusive indicator of a stock’s short-term price performance. . The magnitude of the recent consensus estimate change, along with three other factors related to the earnings estimate, has resulted in a Zacks Rank of #3 (Hold) for Microsoft.
The chart below shows the company’s consensus EPS estimate over the next 12 months over time.
12 months EPS
Revenue growth forecast
There’s no question that a company’s profit growth is the best indicator of its financial health, but nothing will happen if it doesn’t make a profit. It’s nearly impossible for a company to expand its bottom line without growing it over the long term. Therefore, it’s important to know a company’s earnings growth potential.
For Microsoft, the consensus revenue estimate for the current quarter is $60.63 Billion, representing a year-over-year change of +14.7%. Forecasts for the current and next fiscal year are $243.6 billion and $277.31 billion, representing changes of +15% and +13.8%, respectively.
Last reported results and surprising details
Microsoft reported revenue of $62.02 billion in its last reported quarter. This represents a +17.6% year-over-year change. EPS for the same period was $2.93, compared to $2.32 in the year-ago period.
The reported earnings represent a surprise of +1.62% when compared to the Zacks Consensus Estimate of $61.03 billion. EPS surprise was +6.16%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company has surpassed consensus revenue estimates every time during this period.
evaluation
You cannot make efficient investment decisions without considering stock valuation. To predict a stock’s future price performance, it is important to determine whether the current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Compare the current value of a company’s valuation multiples, such as price to earnings (P/E), price to sales (P/S), and price to cash flow (P/CF), to its own value, while also Value helps determine whether a stock is fairly valued, overvalued, or undervalued, and by comparing a company to its peers based on these parameters, you can determine whether a stock is reasonably priced. I can understand the gender.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation metrics and rates stocks from A to F, where A is better than B. , B is better than C, A is better than B, and B is better than C). ), can be very helpful in identifying whether a stock is overvalued, properly valued, or temporarily undervalued.
Microsoft is rated D on this score, indicating that it trades at a premium relative to its industry peers. Click here to see the values of some of the metrics that determined this grade.
conclusion
The facts discussed here and many others on Zacks.com may help you decide whether the market buzz regarding Microsoft is worth paying attention to. However, the company’s Zacks Rank #3 suggests it could outperform the broader market in the near term.
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