Stock Analysis: Microsoft Corporation (MSFT)

Emma Monaghan, The London School of Economics and Political Science

Overview

Microsoft is the world’s leading computer operating system producer and its flagship product, the Microsoft Office 365 suite, was established 10 years ago and since then, the company has added 24 additional apps without any changes in the price for the subscription. However, this is about to change as Microsoft has recently decided to increase the price of the Microsoft Office 365 subscriptions by as much as 25%. Although these price hikes will not come into effect until March 2022, the announcement of them in late August 2021 sent the MSFT stock price to record highs, but following the recent peak, many investors are wondering if it’s too late to buy.

Analysis

Microsoft has long been hailed as a high-value stock due to its stability and long history of paying dividends to its shareholders, but it has not necessarily been regarded as the highest performing tech stock. However, the recent price changes for Microsoft software caused the stock price to climb to a new high of $304.65 on 23rd August, meaning that the stock price is up 37% from last year, outperforming many of its tech rivals, doubling the gains of the S&P 500 and reaching a market cap of $2.3 trillion. Additionally, Microsoft reported strong 2021 Q4 results with a revenue increase of 19% and a net income increase of 47% from the previous quarter as well as earnings per share (EPS) of $2.17, all of which exceeded expectations. Microsoft’s consistent growth and recent subscription price increase created optimism around the stock in spite of its current record position as investors believe that Microsoft’s earnings will keep going up and up, and with them, the rewards to investors.

As a result of MSFT’s impressive track record, the stock has always been popular amongst institutional investors, but lately some hedge funds have decided to sell out their positions. The changing attitude seems to largely stem from the belief that MSFT has reached its peak value and that it is struggling to keep up with other high-performing tech stocks as its price/earnings (P/E) ratio trails behind competitors at 38. While retail investors seem to be optimistic about MSFT future performance, changes in popularity with hedge funds often have a way of signalling future stock performance and if this runs true, it isn’t hopeful.

Forecasts for Microsoft remain optimistic despite the movements of some institutional investors with analyst ratings to buy MSFT and an average stock price target of $327.43. If MSFT future performance is anything like its historical record, it will keep reaching record highs and rewarding its shareholders, especially given the recent price hikes for its software subscriptions. 

Conclusion

It seems as though tech stocks are unstoppable as they keep recording new highs and enjoying ever-increasing revenue, but there is a question as to how long this will last. In the case of Microsoft, its historical stability and recent success make it an attractive stock, however, it seems to struggle to keep up with its peers. There are conflicting opinions about Microsoft stock; according to the analyst ratings, MSFT is a buy, but the actions of some hedge funds suggest that its performance may start to dwindle. Recent performance indicates that Microsoft is still a high value stock, but the question remains: for how long can Microsoft maintain its impeccable stock market record?

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