The most recent earnings release Microsoft Corporation's (NASDAQ:MSFT) announced in August 2019 indicated that the business experienced a major tailwind, more than doubling its earnings from the prior year. Below is a brief commentary on my key takeaways on how market analysts perceive Microsoft's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Market analysts' prospects for next year seems rather muted, with earnings increasing by a single digit 2.5%. The growth outlook in the following year seems much more optimistic with rates generating double digit 16% compared to today’s earnings, and finally hitting US$50b by 2022.
Although it is helpful to understand the growth year by year relative to today’s level, it may be more insightful to evaluate the rate at which the company is rising or falling every year, on average. The advantage of this technique is that we can get a better picture of the direction of Microsoft's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I've appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 8.8%. This means that, we can presume Microsoft will grow its earnings by 8.8% every year for the next couple of years.
For Microsoft, I've put together three essential aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is MSFT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MSFT is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MSFT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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