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Today we're going to take a look at the well-established Microsoft Corporation (NASDAQ:MSFT). The company's stock received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$232 at one point, and dropping to the lows of US$198. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Microsoft's current trading price of US$206 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Microsoft’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Microsoft?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10.11% above my intrinsic value, which means if you buy Microsoft today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth $187.26, then there isn’t really any room for the share price grow beyond what it’s currently trading. What's more, Microsoft’s share price may be more stable over time (relative to the market), as indicated by its low beta.
What kind of growth will Microsoft generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 40% over the next couple of years, the future seems bright for Microsoft. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? MSFT’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on MSFT, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you'd like to know more about Microsoft as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Microsoft, and understanding these should be part of your investment process.
If you are no longer interested in Microsoft, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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