Buy MSFT Stock At $460?
Microsoft (NASDAQ:MSFT) stock has experienced a notable increase of 16% over the last month, surpassing the S&P 500's 6% rise. This growth is primarily attributed to Microsoft's impressive Q1 earnings exceeding expectations and a positive outlook, bolstered by its dominance in cloud computing and AI, especially with significant Azure growth.
However, following its recent ascent, is MSFT stock still worth buying? Yes, we believe that MSFT stock, which is currently priced around $460, offers an appealing buying opportunity. Though its present valuation is elevated compared to the benchmark index, making it susceptible to negative events, we do not see any significant reasons for concern. Our assessment stems from a thorough evaluation of Microsoft's present valuation relative to its historical operational performance and financial condition. We have examined Microsoft against key criteria: Growth, Profitability, Financial Stability, and Downturn Resilience. This evaluation indicates a robust operational performance and financial status, which we will explain in more detail below.
That being said, if you are looking for upside potential with lower volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative — it has outperformed the S&P 500 and achieved returns exceeding 91% since its launch. Separately, see – Nvidia Stock's 1 Big Risk
Based on the price you pay per dollar of sales or profit, MSFT stock appears overpriced in relation to the broader market.
Microsoft's Revenues have experienced significant growth in recent years.
Microsoft's profit margins are significantly higher than those of most companies in the Trefis coverage universe.
Microsoft's financial position is very solid.
MSFT stock has experienced an impact that was slightly more favorable than the benchmark S&P 500 index during some recent downturns. Concerned about how a market crash might affect MSFT stock? Our dashboard How Low Can Microsoft Stock Go In A Market Crash? provides a comprehensive analysis of how the stock fared during and after previous market crashes.
In conclusion, Microsoft's performance across the evaluated criteria is as follows:
Microsoft has showcased strong performance in key financial metrics. Although its current valuation seems elevated compared to the broader market, it is consistent with Microsoft's own historical performance. For example, the current price-to-sales (P/S) ratio of 12.6x aligns with its 12.4x average over the past four years. Similarly, the price-to-earnings (P/E) ratio of 35x is in line with the stock's average P/E during the same timeframe.
Looking forward, significant growth in Azure is expected to fuel further increases in valuation multiples. The company's revenue growth over the next three years is projected to average in the low double-digits, compared to a 12% average over the preceding three years. Overall, despite its recent increases, we believe MSFT stock continues to be an attractive buy at current levels. In fact, we estimate Microsoft's valuation to be $535 per share, indicating over 15% upside potential.
Nevertheless, it is vital to recognize potential risks. A downturn in economic growth or a recession could result in decreased corporate investments in infrastructure, potentially affecting Microsoft's revenue growth. Even though MSFT stock has historically performed better than the benchmark index during economic downturns, a decline in its stock price during such situations cannot be dismissed.
Not entirely satisfied with the volatile nature of MSFT stock? The Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has a proven history of consistently outperforming the S&P 500 over the past four years. What accounts for this? As a collective, HQ Portfolio stocks have delivered superior returns with reduced risk compared to the benchmark index; a more stable investment experience, as demonstrated by HQ Portfolio performance metrics.
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