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 returned +1%. This compares to a +4.8% change in the Zacks S&P 500 Composite Index. During this period, the Zacks Computer – Software industry, which includes Microsoft, rose 3.2%. 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
Zacks prioritizes evaluating changes in a company's future earnings expectations above all else. That's because we believe that the present value of future income streams determines the fair value of a stock.
Essentially, we study 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%. Over the past 30 days, the Zacks Consensus Estimate has changed +1.4%.
The consensus earnings estimate for the current fiscal year of $11.63 represents a year-over-year change of +18.6%. Over the past 30 days, this estimate has changed by +0.8%.
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. Over the past month, the forecast has changed by +0.8%.
The Zacks Rank, a proprietary stock evaluation tool with a strong, outside-audited track record, effectively harnesses the power of earnings estimate revisions to deliver a more definitive picture about near-term stock price direction. We provide 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
There's no question that a company's profit growth is the best indicator of its financial health, but nothing will happen if it doesn't make a profit. It's nearly impossible for a company to expand its bottom line without growing it over the long term. Therefore, it's important to know a company's earnings growth potential.
For Microsoft, the consensus revenue estimate for the current quarter is $60.66 billion, representing a year-over-year change of +14.8%. For the current and next fiscal years, estimates of $243.69 billion and $277.54 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. Whether a stock's current price accurately reflects the intrinsic value of the underlying business and the company's growth prospects is a key determinant of future stock performance.
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), and the past value of your company Comparing a company to its peers based on these parameters can help you see if it is overvalued, overvalued or undervalued, but how reasonable its stock is You can get a good idea of what
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) categorizes stocks into five groups, ranging from A to F, with A ranging from B to F. B is better than C, and so on), and can help identify whether a stock is overvalued, fairly valued, or temporarily undervalued. Masu.
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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The company is a little-known chemical company, and despite a 65% increase over last year, it's still very cheap. With continued demand, soaring 2022 profit estimates and $1.5 billion in stock buybacks, retail investors could jump in at any time.
Does this company stack up against other stocks that have recently seen their Zacks stock double, like Boston Beer Company, which has soared +143.0% in less than 9 months, and NVIDIA, which has soared +175.9% in one year? , or may exceed.
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