Is Microsoft’s stock good after losing 25% of its value?

  • Microsoft stock lost 25% this year as investors rushed to avoid high -growth stocks.
  • MSFT is a high-quality, low-risk tech giant with extensive economic leeway.
  • The company’s latest earnings report shows that the software maker remains in strong growth mode.
  • If you want to improve your search for new investment ideas, see InvestingPro+.

When markets deteriorate, it becomes more difficult to separate wheat from chaff. In the current recession, investors are selling everything indiscriminately, pushing the value of some of the best managed companies to an extent that their stocks have become very attractive to anyone who maintains a long-term portfolio of holding.

The second most important company in the United States, Microsoft (NASDAQ :), is an example of this. Stocks are down about 25% this year amid investors ’rush to avoid high -growth stocks at a time when the Federal Reserve is aggressively tightening financial conditions – a move that could push economy in a recession.

The current bearish period comes after two years in which MSFT stocks have made strong gains. In 2021 alone, the software giant’s stock gained nearly 55%, nearly double the benchmark expansion. reference.

No one knows how long the current selloff will be, but there are good reasons to believe that Microsoft stock is a good candidate to buy under.

Microsoft, headquartered in Redmond, Washington, is a high-quality, low-risk technology giant with a broad economic base. The software maker is among the companies best positioned to cope with economic disruptions and has the best pricing power to offset inflationary pressures.

Microsoft is firmly entrenched in the digital economy thanks to its diversified business model that includes a range of Office products, its cloud computing services, and a gaming unit. The company’s cloud computing business has been the main driver behind the stock’s 285% increase over the past five years, where its CEO, Satya Nadella, has ventured into new areas of growth, primarily focused on the cloud. computing.

According to many analysts, there is still room for this series of unprecedented successes. One of the main factors driving this optimism is the move to cloud computing, which is just beginning across the industry.

Microsoft’s Azure unit, which leases computing power to start-ups and large businesses, is poised to thrive in the coming years. According to Wedbush Securities, global spending on cloud computing services will approach $ 1 trillion over the next decade as companies spend more on cloud computing.

Stability during a recession

The company’s latest shows keep Microsoft in a steady growth mode, navigating through supply chain disruptions and inflationary pressure. Unit Azure – second only to Amazon’s AWS Web Services Group (NASDAQ 🙂 in cloud infrastructure services – posted 46% growth in the company’s first fiscal quarter, in line with the second quarter rate and meeting in estimates.

The company also reported strength in commercial reservations, a measure of future revenue, with multi-year contracts for Office 365, Microsoft 365 and Azure driving growth. Contract renewals describe customer satisfaction with Microsoft cloud products.

Because of these strengths, Microsoft’s stock remains a favorite choice for analysts.

MSFT - Consensus

Source: Investing.com

In an Investing.com poll of 50 analysts, 47 of them rated the stock as a “buy” with an average price target indicating approximately 44% upside potential.

MSFT - Fair Value

Source: Investing Pro

Similarly, under some valuation models, including P/E or P/S multiple or terminal value, the average fair share value of MSFT at InvestingPro is $ 312.71, a potential increase of 24% from current market value.

RBC, in a note last week, reiterated Microsoft’s outperformance, saying the company would show stability in a downturn. His note added:

“We conducted virtual meetings with Microsoft investors. Our key findings were: 1) no change in macro/demand comments, and we believe the business model will withstand the recession; 2) the impact The salary increase is minimal, and we still expect margin expansion for FY23. “

Another investment bank, Barclays also reiterated Microsoft’s overweight, saying the company’s Teams enterprise chatting software represents an “$ 85 billion opportunity”. His note says:

“Recently, we have seen increased investor anxiety about future growth opportunities for Microsoft’s Office franchise. Put an end to those concerns. In turn, this should reaffirm Microsoft as a leading investment in our software universe. “

Microsoft’s strong balance sheet and dividend program provide another compelling reason for investors seeking refuge in today’s uncertain times. MSFT currently pays $ 0.62 per quarter, an annual return of 0.93%. But with cash reserves in excess of $ 130 billion, the company has enough strength to back its stock with stock buybacks and dividend increases.

Microsoft is one of two publicly traded companies to get the highest triple-A rating from Moody’s Investors Service and S&P Global. Ratings, the two largest credit companies.

Conclusion: Is Microsoft stock a buying opportunity?

While Microsoft, along with other tech giants, may continue to drop the current sell-off in the market, this weakness should be viewed as a buying opportunity in the case of MSFT shares. It offers the opportunity to take a position in a good company whose competitive advantage is less threatened.

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