With shares of Microsoft Corporation (NASDAQ:MSFT) trading at around $34.85, is MSFT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Google.com is the most visited website in the world. On Alexa.com, it ranks #1 globally and #1 in the United States. Bing.com ranks #16 globally and #6 in the United States. That’s probably higher than most readers would have expected.
There’s a good chance that you have seen commercials for Bing It On. In these commercials, someone approaches a stranger on the street and asks them to compare Google and Bing search engines. Of course, the strangers can’t see which site is which when they make their choices. After wondering if these commercials were legit, and since a Microsoft article was on deck, it made sense to take an individual stab at Bing It On. It’s set up as a split screen. You type in a search term and two different sets of results come up. You then select which search result you felt was more informative, or simply which search result you liked better. The left and right search results don’t always belong to the same search engine. In other words, Google won’t always be on the left. The results are mixed so the person taking the challenge won’t notice which site is which and then keep voting that way due to favoritism. You type in five different search terms and then choose which search results you prefer. As far as individual results go, Bing won 4-1. Pretty impressive! However, Google’s numbers are still much stronger.
According to Alexa.com, Google’s average pageviews-per-user is 16.01, average time-on-site is 15:25, and average bounce rate (only one page viewed per visit) is 16.80 percent. These numbers are outstanding. Over the past three months, pageviews-per-user has increased 7.02 percent, time-on-site has increased 4 percent, and the bounce rate has declined 1 percent.
Bing’s average pageviews-per-user is 4.64, average time-on-site is 3:20, and average bounce rate is 40.4 percent. Over the past three months, pageviews-per-user has increased 1.50 percent, time-on-site has declined 2 percent, and the bounce rate has declined 2 percent. Overall, these are good numbers. They’re just not as good as Google. That said, Bing has been gaining at least a little ground. Bing’s traffic has consistently increased over the past two years.
Microsoft has revealed its Xbox One, which is aimed for living room dominance. It’s an all-in-one entertainment system that can allow you to:
- Play games
- Watch television
- Use voice command
- Make Skype video calls
It’s a great concept, but Microsoft’s strategy is missing something. It’s understood that the company is aiming for a young audience in order to hook that audience on its products for years to come, but using a gaming console to rule the living room simply isn’t going to lead to phenomenal potential. For instance, would your aunt want a gaming console as the main source of entertainment for her living room? She would likely be turned off by the idea.
|Operating Cash Flow||30.61B||55.26B||16.56B|
Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Microsoft has outperformed its peers year-to-date.
|1 Month||Year-To-Date||1 Year||3 Year|
At $34.85, Microsoft is trading well above its averages.
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for Microsoft is stronger than the industry average of 0.30. Microsoft has always managed debt well. This is often underappreciated by investors.
E = Earnings Suffered a Setback
Earnings had been improving until there was a setback in 2012. However, earnings are a lot easier to fix than revenue. As far as revenue goes, it has consistently improved on an annual basis. The rate of growth has been sporadic, but the direction has been consistent.
|Revenue ($) in millions||60,420||58,437||62,484||69,943||73,723|
|Diluted EPS ($)||1.87||1.62||2.10||2.69||2.00|
When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.
|Quarter||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012||Mar. 31, 2013|
|Revenue ($) in millions||17,407||18,059||16,008||21,456||20,489|
|Diluted EPS ($)||0.60||-0.06||0.53||0.76||0.72|
Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Microsoft is currently trading at about 18 times earnings while the industry average is 26 times earnings. As always, margins are solid and cash flow is strong. The 2.60 percent yield wouldn’t make any sane investor complain, and the stock has even outperformed Apple and Google year-to-date. Analysts like the stock: 17 Buy, 19 Hold, 2 Sell.
Microsoft did suffer an earnings setback in 2012, and the stock isn’t as resilient as many people would think in bear markets. Furthermore, according to Glassdoor.com, only 47 percent of employees approve of Steve Ballmer.
Microsoft is without a doubt a long-term winner, but this doesn’t look to be the ideal entry point. Microsoft is a WAIT AND SEE.
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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t own any positions in this stock.