Things Are Pointing Up for Microsoft Corporation (MSFT)

Page 1 of 2

If there was one company that did not provide any significant shareholder return even in spite of exceptional performance in the last few years, that is Microsoft. As is written in this article:

[...] the Microsoft example provides is how there was such a separation between business results and stock performance. Clearly, Microsoft, the business, performed exceptionally well from 1999 until today. However, because the price was so insanely overvalued, shareholder returns were poor in spite of strong operating results.

As a matter of fact, a company’s performance and its shareholders’ returns are two completely different things. That’s where the term ‘value’ comes in. In this article, I want to research a bit about the present value of Microsoft Corporation (NASDAQ:MSFT) and where the stock price might be heading from here.

One of the best valuation indicators can be the price estimates by the analysts. According to Investorguide.com, here is a list of price estimates as per popular analysts. And it does not seem too inspiring to me. In fact, the stock’s target price has been revised downward in the last 3 weeks.


Is Microsoft Corporation (NASDAQ:MSFT) really getting overvalued?

If I consider $25 as the average price for the last 5 years, then Microsoft is currently trading above its mean stock price. Can we justify the uptrend? With Windows 8 not doing so good and the PC market going down, we may not have enough valid reasons to justify the current stock price.


It can be noticed though that the non-corporate insider transactions have leaned far too much on the ‘selling’ side. Non-corporate insiders can be expected to be not interested in taking over a company. They are mainly focused on wealth maximization, as are we. And why are they selling more than they are buying? Are the insiders not so confident about the company? Or are they knowledgeable about the imminent stock price decline?

One interesting thing to note is that the institutional investors have not changed their positions much in the last three months. Should we be following the ‘big money’?

Institutional Holdings: 65.00% (as of 02/28/13)
Bought (Previous 3 Mo): 422.26 million
Sold (Previous 3 Mo): 425.65 million
Total Held: 5.45 billion
Institutions: 3.29 thousand
Non-Corp. Insider Holdings: 9.20% (as of 01/31/13)
Bought (Previous 3 Mo): 15.13 thousand
Sold (Previous 3 Mo): 5.05 million

Let us take a look at the various valuation ratios now.

Fundamental valuation

Price-to-earnings ratio: The interesting thing to note about Microsoft Corporation (NASDAQ:MSFT)’s PE ratio and stock price is that while the price has been relatively trading around the average level for the last 5 years, the PE ratio is at its lowest right now since 2010.


With EPS expected to reach $3.50 by 2015, the price has potential to grow. Right now, the PEG ratio seems to have reached the upper limit. With any positive updates from Microsoft Corporation (NASDAQ:MSFT), the PEG ratio should go down, with PE ratio going up, raising the valuation of the company.


Price-to-book ratio: The P/BV ratio is at its lowest in the last 10 years.


If you look at the table below though, shareholders’ equity has gone up exponentially since 2010. With $63 billion in short-term investments and $10.7 billion in long-term debt (only $1.23 billion of that counted as current) as of December, 2012, the company seems to be in a healthy financial position.

Needless to say, the book value per share should go up in the coming few years. $2.31 billion worth of investment in fixed assets in 2012 is not going to go to waste, I am sure. And that’s when the P/BV ratio is going to rise to the normal level. In fact, the current book price is $40.52, the price at which the stock should trade to achieve the average P/BV level of the last 10 years.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!