microsoft (MSFT – Free Report) is one of the most searched stocks on Zacks.com these days. So it's worth looking at some facts that could shape the stock's performance in the short term.
Over the past month, the software maker's stock has increased +3.5%. In comparison, the Zacks S&P 500 composite index changed +2.8%. During this period, the Zacks Computer – Software industry, which includes Microsoft, rose 3.4%. The key question here is: What is the future direction of the stock price?
While media releases and rumors about significant changes in a company's business prospects typically cause its stock to “trend” and lead to immediate price movements, there are some fundamentals that ultimately govern buy-and-hold decisions. There are always facts.
Regarding revisions to performance forecasts
At Zacks, we prioritize evaluating changes in company earnings estimates rather than focusing on anything else. This is because we believe that the fair value of a stock is determined by the present value of its future income stream.
Essentially, we look at how the sell-side analysts covering a stock are revising their earnings estimates to reflect the impact of the latest business trends. And as a company's earnings expectations rise, so will the fair value of its stock. If the fair value is higher than the current market price, investors will be more willing to buy the stock, causing the price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Microsoft is expected to post earnings of $2.84 per share for the current quarter, representing a year-over-year change of +15.9%. The Zacks Consensus Estimate remained unchanged over the past 30 days.
The consensus earnings estimate for the current fiscal year of $11.63 represents a year-over-year change of +18.6%. This estimate has not changed over the past 30 days.
Next year's consensus earnings estimate of $13.15 represents a +13.1% change from the revenue Microsoft was expected to report a year ago. Estimates have not changed over the past month.
The Zacks Rank, a proprietary stock evaluation tool with a strong, outside-audited track record, leverages the power of earnings estimate revisions to provide a more definitive picture on near-term stock price direction. To do. The magnitude of the recent change in consensus estimates, as well as three other factors related to earnings estimates, give Microsoft a Zacks Rank #2 (Buy).
The chart below shows the company's consensus EPS estimate over the next 12 months over time.
12 months EPS
Revenue growth forecast
Earnings growth is arguably the best indicator of a company's financial health, but nothing will happen if a company can't grow its revenue. After all, it's nearly impossible for a company to increase profits over a long period of time without increasing revenue. Therefore, it's important to know a company's earnings growth potential.
For Microsoft, the consensus revenue estimate for the current quarter is $60.63 billion, representing a year-over-year change of +14.7%. The current and next fiscal year estimates of $243.6 billion and $277.33 billion represent changes of +15% and +13.9%, respectively.
Last reported results and surprising details
Microsoft reported revenue of $62.02 billion in its last reported quarter. This represents a +17.6% year-over-year change. EPS for the same period was $2.93, compared to $2.32 in the year-ago period.
The reported earnings represent a surprise of +1.62% when compared to the Zacks Consensus Estimate of $61.03 billion. EPS surprise was +6.16%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company has surpassed consensus revenue estimates every time during this period.
evaluation
You cannot make efficient investment decisions without considering stock valuation. To predict a stock's future price performance, it is important to determine whether the current price accurately reflects the intrinsic value of the underlying business and the company's growth prospects.
The present value of a company's valuation multiples such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), as well as the company's past value, are Comparing a company to its peers based on these parameters will help you see how reasonable its stock price is. You can get to know better.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation metrics and rates stocks from A to F, where A is better than B. , B is better than C, A is better than B, and B is better than C). ), can be very helpful in identifying whether a stock is overvalued, properly valued, or temporarily undervalued.
Microsoft is rated D on this score, indicating that it trades at a premium relative to its industry peers. Click here to see the values ​​of some of the metrics that determined this grade.
conclusion
The facts discussed here and many others on Zacks.com may help you decide whether the market buzz regarding Microsoft is worth paying attention to. However, the company's Zacks Rank #2 suggests it has the potential to outperform the broader market in the near term.
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