Does Microsoft’s action have short-term potential?

[Updated 04/22/2021] Microsoft update

At the current price of around $ 260 per share, we believe Microsoft’s actions (NASDAQ: MSFT) is in line with its near-term potential. MSFT stock has risen 297% since the end of fiscal 2017 (end of June 2017) compared to the S & P500 which rose 73% during the same period. Revenue and profits increased in the first half of fiscal 2021 (fiscal year ends in June) as the Covid-19 pandemic pushed individuals and organizations towards digitalization and cloud offerings.

Microsoft continued its pursuit of growth through the cloud with a definitive agreement to acquire Nuance

NUAN
Communications April 12, 2021. The Company will acquire Nuance for $ 56.00 per share in a cash transaction valued at $ 19.7 billion, including Nuance’s net debt. Nuance is a cloud and software company with decades of experience in healthcare and enterprise AI. They are widely known for their “voice to text” software. With this acquisition, Microsoft is expected to expand its presence in the healthcare industry, leveraging Nuance’s broad array of healthcare portfolios in the United States.

Over the past few years, the company has seen its profits increase while its P / E multiple has also increased. Our dashboard ‘Buy or Sell Microsoft Stock‘ has the underlying numbers.

Despite the Covid-19 crisis, Microsoft revenue are expected to reach $ 164.6 billion, up 15.1 percent year-on-year. In addition, its net profit is expected to reach $ 53.4 billion, increasing its EPS to $ 7.02 which, together with the P / E multiple of 38.2x, will lead to Microsoft’s valuation about $ 268 per share, up 3% from the current market price.

[Updated 04/01/2021] Microsoft’s stock is more than 10% up

At the current price of around $ 235 per share, we believe Microsoft’s actions (NASDAQ: MSFT) has moderate growth potential in the near term. MSFT stock has risen 258% since the end of fiscal 2017 (end of June 2017) compared to the S & P500 which rose 64% during the same period. Revenue and profits increased in the first half of fiscal 2021 (fiscal year ends in June) as the Covid-19 pandemic pushed individuals and organizations towards digitalization and cloud offerings.

There are suggestions that Microsoft is in exclusive talks to acquire Discord for the price of nearly $ 10 billion. Discord is known as a social hub for millions of gamers around the world – all types of communities use it, including various companies that use technology for seamless collaboration. The acquisition, if it were to happen, could be a huge step forward in Microsoft’s digital transformation segment, one of its most important areas of growth. Although a lot will depend on how Microsoft uses the platform and instills it with its existing solutions.

Microsoft’s revenue grew from $ 96.6 billion in fiscal 2017 (end of June 2017) to $ 143 billion in fiscal 2020 (end of June 2020). The net profit margin increased from 26.4% in fiscal 2017 to 31% in fiscal 2020. Per share, earnings increased from $ 3.29 to $ 5.82 while the company recorded a 1.8% drop in outstanding shares.

During the same period, the P / E multiple increased from 20x to around 35x. The P / E improved slightly in fiscal 2021 and is currently around 40x.

Where is the stock headed?

The global spread of the coronavirus has resulted in lockdowns in various cities around the world, which has affected industrial and economic activity. This, in turn, has fostered the digitalization of organizations with a push for remote working. Microsoft saw its revenues increase 15% to $ 80.2 billion for the first half of fiscal 2021. For the same period, revenues increased to $ 3.85 from $ 2.90 the previous year.

The actual recovery and its timing depend on the wider containment of the spread of the coronavirus. Our dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Brazil and Russia. Following the stimulus from the Fed – which set a floor on fear – the market was willing to “look through” the current period of weakness and take a longer view. With investors focusing their attention on the 2021 results, valuations become important in finding value. Although market sentiment may be fickle, and evidence of a slight uptick in new cases could scare investors again. In 2021, we forecast MSFT’s revenue to reach $ 164.6 billion, up 15.1% year-on-year. In addition, its net profit is expected to reach $ 53.4 billion, increasing its EPS to $ 7.02 which, together with the P / E multiple of 38.2x, will lead to Microsoft’s valuation about $ 268 per share, up 14% from the current market price.

While Microsoft stocks have an advantage, are you looking for reasonably priced software stocks with big room for growth? Discover our theme on Mid-cap SaaS stocks.

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