Here’s what to know beyond why Microsoft Corporation (MSFT) is a trending stock

Microsoft (MSFT) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.

Over the past month, shares of this software maker have returned -3.9%, compared to the -6.6% change in the Zacks S&P 500 composite. During this period, the industry Zacks Computer – Software, which includes Microsoft, lost 5.4%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its 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 $2.30 per share for the current quarter, representing a year-over-year change of +6%. Over the past 30 days, the Zacks consensus estimate has changed by -0.8%.

The current year earnings consensus estimate of $9.28 indicates a year-over-year change of +16.4%. This estimate has changed by -0.3% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $10.59 indicates a change of +14.1% from what Microsoft was expected to report a year ago. Over the past month, the estimate has changed by -0.3%.

With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, resulted in a Zacks ranking of No. 3 (hold) for Microsoft.

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Revenue Growth Forecasts

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.

For Microsoft, the consensus sales estimate for the current quarter of $52.38 billion indicates a year-over-year change of +13.5%. For the current and future fiscal years, the estimates of $198.53 billion and $225.18 billion indicate variations of +18.1% and +13.4%, respectively.

Latest reported results and history of surprises

Microsoft reported revenue of $49.36 billion in the last quarter, representing a year-over-year change of +18.4%. EPS of $2.22 for the same period versus $1.95 a year ago.

Compared to the Zacks consensus estimate of $48.96 billion, reported revenue is a surprise +0.81%. Surprise EPS was +1.83%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S) and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Microsoft is rated D on this front, indicating that it is trading at a premium to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Microsoft. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

Zacks names ‘only one best choice for doubling up’

From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.

It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.

This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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