Microsoft stock (MSFT) is a staple in many index funds and 401(k) portfolios, but the question on investors' minds is whether or not it can beat the broader market in the next three to five years. This article provides a comprehensive analysis of Microsoft's financial reports, strengths, and weaknesses to help traders decide if buying Microsoft stock is worth it.
Microsoft has diversified into multiple industries, including its MS Office products, cloud computing division, LinkedIn, PC division, and Xboxes. While some of these industries perform well, others are struggling. For instance, Windows OEM and device revenue fell 39% in Q2 FY 2023, ending December 31, due to weakness in the consumer PC sector. However, Azure, the company’s cloud computing division, grew revenue by 31%, while Dynamics 365 saw a 21% rise in sales. Due to offset from the weaker divisions, Microsoft only grew revenue by 2% in Q2.
Some of the current problems the company is facing are short-lived, such as weaker consumers leading to poor PC sales, and many people have already upgraded their devices during the COVID pandemic. However, analysts only expect Microsoft to grow revenue by 5.4% in FY 2023, ending June, and in FY 2024, projected revenue grew by 11%. Earnings are expected to follow a similar projection. Thus, FY 2023 will be a breather for Microsoft stock, while 2024 will pick up where 2022 left off.
Staying clear of the stock, for now, would be wise, especially with the unwarranted 20% run-up since the earnings report. The outlook from analysts is not that strong anymore, which means Microsoft will trade at a slightly lower premium. With shares trading at 27 times the 2024 earnings, the stock is quite expensive for the 11% growth expected in FY 2024. Many other stocks are poised to perform better than the market.
While Microsoft has a strong presence in multiple industries and its cloud computing division is building the future of how companies offload computing power, its weaknesses offset its strengths. With slow revenue growth and falling EPS, the performance of its stock will likely match the market, and other stocks are poised to perform better. As a trader, you can invest in other stocks through platforms like Apex Markets, which offers up to 100% matching welcome bonus to start trading. Keep track of the latest news and stay ahead of the curve in trading.Sign up now at www.apexmarkets.io, verify your KYC, and receive up to a 100% matching welcome bonus to start trading.