Is Microsoft stock price ready for takeoff (technical analysis)? (NASDAQ: MSFT)

Jean-Luc Ichard

Introduction

In many companies, Microsoft Corporation (NASDAQ: MSFT) represents a diversified software company, including development tools, games and business software. It’s still one of the biggest software companies in the world, with strong fundamentals and technical indicators to show continued growth from that $1. company with a market capitalization of more than a trillion dollars.

Fundamentals are solid past and future

Reports

The current ratio and the quick ratio have weakened during the pandemic. The cash ratio has declined, so should this be a global concern? Looking further into this chart, you can see that these ratios are dropping due to a slowdown in the global economy.

From an accounting perspective, inventory and debt days are headed in the wrong direction. Fortunately, net income has grown over the past five years, which should outweigh these past concerns.

2018

2019

2020

2021

2022

Period

AF

AF

AF

AF

AF

Current ratio

2.901

2.529

2.516

2.080

1.785

Quick report

2,740

2.353

2.331

1.899

1.567

Cash ratio

0.204

0.164

0.188

0.160

0.147

Current sales days

87.582

85.633

81,698

82.610

81.481

Inventory days left

25.334

17.548

15.011

18.421

21.801

duty cycle

112.916

103.181

96.709

101.030

103.282

Days of unpaid debts

82.007

79.805

99.255

105.960

110.694

The net profit margin

0.150

0.312

0.310

0.365

0.367

Source: preparation for financial modeling

Growth

Over the past five years, Microsoft has seen a return to profitability since 2020 in terms of revenue, but is showing weakness this year as global economic conditions deteriorate.

Free cash flow growth and operating cash flow growth are the weakest this year.

2018

2019

2020

2021

2022

Period

AF

AF

AF

AF

AF

Revenue increase

0.227

0.140

0.136

0.175

0.180

Gross profit growth

0.293

0.152

0.169

0.195

0.171

Ebit growth

0.570

0.225

0.233

0.320

0.193

Operating income growth

0.570

0.225

0.233

0.320

0.193

Net income growth

-0.218

1.368

0.128

0.384

0.187

Growth in operating cash flow

0.111

0.189

0.163

0.265

0.160

Free cash flow growth

0.028

0.186

0.182

0.241

0.161

Source: preparation for financial modeling

Data

In terms of stock price growth, Microsoft has shown some strength over the past 20 business days with a more robust simple moving average despite being negative for 50 or 200 days.

Values

SMA20

4.34%

SMA50

-2.41%

SMA200

-10.01%

Source: FinViz

Company

There are impressive company-level metrics since 2018, growth and stock price, as well as a 300% increase in market capitalization. It’s also remarkable to see the company’s value add $500 million to its importance over the past three years.

2018

2019

2020

2021

2022

Symbol

MSFT

MSFT

MSFT

MSFT

MSFT

share price

105.370

140.350

203.900

284.910

280.740

Number of shares

7,700 B

7.673B

7.610B

7.547B

7.496B

Market capitalization

811.349 B

1,077 tons

1,552 tons

2.150T

2.104T

Add total debt

81.808B

78.366B

70.998B

67.775B

61.270B

Enterprise value

881.211 B

1.144 tons

1,609 tons

2.204T

2.152 T

Source: preparation for financial modeling

Estimate

Despite Microsoft’s vital past metrics, their estimated forecast looks even more robust. Revenues are expected to continue to grow beyond 2025 and dividend growth may continue to soar at a cautious level. Additionally, EBITDA will strengthen over the next six years, showing that Microsoft has confidence in its stock price, fundamentals and dividends. Total assets will support it, but Microsoft’s main strength comes from its growing research and development.

ANNUAL ESTIMATES

2022

2023

2024

2025

2026

2027

Revenue

218 168

247,669

284,769

325,867

352,709

Dividend

2.45

2.61

2.84

3.19

3.50

3.99

Dividend yield (in %)

1.01%

1.08%

1.17%

1.32%

1.45%

1.65%

PES

10.02

11.79

14.00

16.17

17.24

P/E ratio

29.84

24.13

20.50

17.27

14.96

14.03

EBIT

91,866

105,745

124,460

137,608

148,647

EBITDA

99,391

107,882

125 157

146 212

164,301

178,550

net profit

74,565

87,099

102 203

117,495

124,043

Adjusted net profit

74,868

87,855

102,350

117,495

124,043

pre-tax profit

91,703

107,019

124,793

138,889

151,371

Net profit (adjusted)

84,378

89,639

106,010

123,257

EPS (non-GAAP) e.g. state enterprise

10.02

11.79

14.00

16.17

17.24

EPS (GAAP)

9.91

11.59

13.97

15.74

4:46 p.m.

Gross revenue

149,799

169,802

195 161

212,991

235,842

Free movement of capital

66,230

70,472

83,980

100 604

108 176

117,795

Research & Development Exp.

26,766

29,527

33,825

36,833

40,580

Equity

169,352

202,671

253,388

325,572

370,619

495 547

Total assets

369 343

408,014

467 514

534 723

668 244

783 386

Source: Business Insider

Minimal risk due to strong future momentum

Sustainability

One of Microsoft’s concerns is how its durability has an underperforming rating. Yet, despite the ESG movement, major asset managers like BlackRock or Vanguard continue to invest in this impressive software juggernaut.

Assess

Social rating

8.39

Number of peers

105

Governance note

5.33

total

15.24

The biggest controversy

3

ESG performance

UNDER_PERF

percentile

10.73

peer group

Software and services

Environmental rating

1.53

Source: Yahoo Finance

Price target

Another concern is the confidence with which stock market analysts set excessive price targets but readjusted after stock price drifts over the past four months. These market analysts expect explosive departures from Microsoft but are only disappointed to see a moderate level of variance in the stock price. As a result, I imagine Microsoft’s stock price would have to slowly rise to be a potential outperformer against major broad US stock indices.

Microsoft price target

Microsoft price target (custom platform)

Recommendation

Microsoft has firm and overwhelming recommendations for a strong buy as a market reversal appears to drive the stock higher.

Interval

RECOMMENDATION

TO BUY

SALE

NEUTRAL

A month

STRONG_BUY

17

0

9

One week

STRONG_BUY

17

1

8

One day

TO BUY

14

2

ten

Source: commercial view

Short Trading Volume vs Total Volume

Microsoft’s short selling volume is slightly less than 50% of total trading volume. There are encouraging signs as retail and institutional investors are buying this stock long rather than short. However, as it declines, it only confirms the theory of a trend reversal for Microsoft stock price.

short volume vs total microsoft

short volume vs total microsoft (custom platform)

Insider activity

Over the past few weeks, there has been a recent Microsoft stock buyback, which further confirms that there might be an expected uptrend. This includes CEO Satya Nadella’s recent purchases.

Date

Shares traded

Shares held

Price

Type

Option

Initiated

Swap

2022-09-18

33,465.00

479,324.00

Nope

To buy

Nope

Young Christopher David

33465.0

2022-09-18

29,641.00

641,946.46

Nope

To buy

Nope

Hogan Kathleen T

29641.0

2022-09-18

14,342.00

111,200.00

Nope

To buy

Nope

Capossela Christopher C

14342.0

2022-09-18

11,302.00

121,138.73

Nope

To buy

Nope

SMITH BRADFORD L

11302.0

2022-09-18

11,302.00

121,138.73

Nope

To buy

Nope

Althoff Judson

11302.0

2022-09-18

12,621.00

219,066.60

Nope

To buy

Nope

Amy Hood

12621.0

2022-09-18

27,996.00

174,191.14

Nope

To buy

Nope

Nadella Satya

27996.0

2022-10-16

177.47

67,294.68

228.56

Sale

Nope

Jolla Alice L.

-177.47

Source: Business Insider

Technical analysis confirms perfect entry potential

Fibonacci trend line

If one were to wait for the classic scenario of entering the market when the stock price crosses the Fibonacci trend line, he could lose significant profit potential. However, as the fundamentals seemed to confirm, Microsoft stock price could be on a strong uptrend right now. So why skip it?

microsoft fibonacci

microsoft fibonacci (custom platform)

Bollinger Bonds

Microsoft stock price is currently midway between the upper and lower bands, representing a classic market entry based on strong fundamentals.

microsoft bollinger band

microsoft bollinger band (custom platform)

MACD

Microsoft’s stock price is undervalued as it sits below the blue MACD 0 line. Therefore, this represents an almost perfect opportunity to buy this stock if you were to rely on the strong fundamentals depicted in this report. .

macd microsoft

macd microsoft (custom platform)

IRS

Even better, the relative strength indicator currently sits midway between undersold and oversold market conditions for Microsoft stock price. Again, this presents a decent opportunity to dive into a large, robust tech company.

microsoft

Microsoft rsi (custom platform)

Prediction via AI

Monte Carlo

Most Monte Carlo prediction paths show a higher probability of an uptrend on the current Microsoft stock price. Also, the normalized distribution chart shows a much higher predictability of an uptrend from the current Microsoft stock price.

monte carlo microsoft

monte carlo microsoft (custom platform)

Regression

The projected 30-day movement with the red regression line shows slow growth but could gain strength as the US stock market may intensify in the near term.

microsoft regression

Microsoft regression (custom platform)

Conclusion

Does Microsoft stock price presently represent a near-perfect time to take a position? Based on fundamental analysis, near perfect technical analysis conditions and minimal risk, this can be considered a strong buy recommendation. While the noted concerns about Microsoft’s stock price can be ignored, any investor should be able to sleep at night knowing that there is a set of indicators that show a strong uptrend for this stock.

Karen J. Nelson