Microsoft is one of the world's leading technology companies with products that include the Windows Operating System, the Office 365 Suite, and the Azure cloud service offering. It also owns LinkedIn - a business-oriented social network. In addition to this, Microsoft also has a stake in the gaming industry, via its Xbox platform.
The company has performed strongly over the past five years, with earnings and revenue growing ~20% and ~14% respectively on a compounded annual basis. Microsoft was one of the few companies that benefitted meaningfully during the Covid-19 pandemic due to substantial demand for its cloud and software solutions amid a push toward remote working. Although recent growth has slowed down, the outlook remains positive considering prospects within AI and other rapid advancements in technology.
Technically, the stock price has formed an incomplete bullish flag pattern (refer to the parallel trendlines on the first chart). This is a continuation pattern that signals an upcoming bullish shift in the stock price. The stock is currently trading within the consolidation phase of the pattern, and we expect a break toward the upside.
The stock is trading above its 200-day simple moving average (SMA) of ~$301 and is set to attract more demand from investors at this level.
Fading downside momentum according to the MACD indicator, as well as sidewards movement of the On-Balance Volume indicator, supports a bullish stance.
Share Information
| Share code | MSFT US |
|---|---|
| Industry | Software & Services |
| Market Capital (USD) | 2.46 trillion |
| One Year Total Return | 41.66% |
| Return Year-to-date | 39.10% |
| Current Price (USD) | 331.32 |
| 52 Week High (USD) | 366.78 |
| 52 Week Low (USD) | 213.43 |
| Financial Year End | June |
| While the stock price has already climbed significantly this year, several technical indicators suggest further upside potential. Expect moderate volatility going forward. |
Consensus expectations
(Bloomberg)
| FY22 | FY23E | FY24E | FY25E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 9.68 | 11.02 | 12.62 | 14.97 |
| Growth (%) | 13.79 | 14.54 | 18.63 | |
| Dividend Per Share (USD) | 2.72 | 2.83 | 2.99 | 3.22 |
| Growth (%) | 3.90 | 5.73 | 7.83 | |
| Forward PE (times) | 30.08 | 24.84 | 21.23 | |
| Forward Dividend Yield (%) | 0.87 | 0.92 | 0.97 | |
| The market expects growth over the medium term to remain strong, given a proven track record of consistent performance across the company. Acquisitive activity will also be supportive. | ||||
Buy/Sell Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | BTAL - Take Profit (Close the Position) |
HSTM - Buy (Continue to hold) |
COO - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 19.20 | 22.35 | 330.03 |
| Current | 20.64 | 22.34 | 323.80 |
| Movement | 7.5% | 0% | -1.9% |
| The stock is trading just below our price target, and given current market volatility, we suggest taking profit. |
Frequent up-rallies in the price remains attractive. The stock is trading just below its 200-day simple moving average (SMA), and we maintain the counter-trend strategy. Upside momentum remains supportive.
Our profit target is $25 with a trailing stop-loss of $21.30. Exit the position on 29 December 2023. |
The price is displaying upwards parallel support, and this remains of interest. Trade continues below the 200-day SMA, and we maintain our counter-trend strategy. Fading downside momentum is encouraging.
Our profit target is $369 with a trailing stop-loss of $314. Exit the position on 13 December 2023. |
| Share Name and position | GILD - Buy (Continue to hold) |
AZO - Buy (Continue to hold) |
HST - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 80.00 | 2 556.06 | 16.26 |
| Current | 78.33 | 2 494.66 | 15.75 |
| Movement | -2% | -2.4% | -3.1% |
|
The development of a bullish flag pattern remains attractive. The stock is testing its 200-day SMA, with emerging upside momentum offering some support.
Our profit target is $97 with a trailing stop-loss of $73.80. Exit the position on 19 April 2024. |
The formation of an incomplete broadening top pattern remains attractive. The stock is testing its 200-day SMA. Fading upside momentum, however, is a concern.
Our profit target is $2 800 with a stop-loss of $2 450. Exit the position around 8 November 2023. |
Stability in the price with regular upswings, makes the stock attractive. The stock has fallen below its 200-day SMA but remains above the 200-week SMA. Fading downside momentum, though, is supportive.
Our profit target is $19 with a trailing stop-loss of $15.30. Exit the position around 20 December 2024. |
