Overview
Microsoft has seen a rapid recovery since its recent March lows, joining many other tech companies with their stock recovery. But this might not be the end to the highs- there are many reasons that Microsoft has more room to fly, as the stock is worth between $222 and $240 per share based on expected earnings and dividend growth.
When I first began my journey into the stock market the first thing recommends to me was Microsoft- buy it low and hold onto it – and I am glad I listened. April 8th, 2020, the stock was around $165.13 per share, and since then it has risen over $200 per share. The stock has risen 34% this year, which is striking as this growth is happening over a global pandemic, while many stocks have fallen, or at best, stayed flat.
What Analysts are Saying
According to Yahoo! Finances, an analyst poll estimates that earnings will rise by 19.6%, to $5.68 per share for the year ending June 30th, 2020, above last year’s $4.75. (https://finance.yahoo.com/quote/MSFT/analysis?p=MSFT)
What to Do?
Microsoft’s Q2 performance was excellent, as it now has a market value of $1.5 trillion, trailing just slightly behind Apple. The company’s Azure service division is the successor of cloud computing adoption. Many people are now gravitating to cloud-based work as many must now work from home. Microsoft has also been moving away from software packages to online services; shutting down most of its stores in the process.
Last quarter, earnings were outstanding and took some analysts off-guard. I think the same will happen this quarter as well. If you are a long-term investor like me, it is likely that the stock will continue to rise over the next year, and here is why. Looking at today’s price-earnings ratio of 37 times (for example, $202.88 divided by $5.68 estimated for the year ending June 2020), the stock could hit $230 this year. Analysts estimate EPS of $6.23 in 2021. Multiplying 36.7 times that EPS figure gives $222 per share. My personal opinion- investors who own Microsoft, should consider hanging onto their shares. Otherwise, they should watch the market and take advantage of any weakness in the stock.
