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Microsoft: Shares Will Either Soar Or Dive

Summary

Microsoft's P/E ratio has soared throughout 2015, indicating a high anticipation of strong earnings on the part of investors.

The company has seen significant success in gaining market share with Windows 10 and Office 365.

However, mobile sales have been quite disappointing.

On a P/E ratio basis, I see MSFT as standing to appreciate greatly or take a nosedive in price should low phone sales provoke significant concern.

In my previous article on Microsoft (NASDAQ:MSFT), written on September 19 of last year, I argued that the company had likely reached fair value at a price of $43, and it was unlikely that we would see any significant price increases for the remainder of the year. Lo and behold, the stock reached a peak of just over $56 by the end of this year.

I had previously argued that a large factor behind Microsoft having previously broken through the $50 mark had been investor sentiment rather than actual earnings. In other words, the price is going higher because investors are betting on future rather than current earnings. In this context, investor sentiment is very clearly to the upside with the P/E ratio having increased sharply in 2015 from 20 to 37.

So, why all the hype about Microsoft? I do admit to having been quite the pessimist in my last article, having argued that the company may not be able to differentiate itself sufficiently in the cloud space and potentially low Surface Pro sales could derail its progress.

Granted, these risks remain. However, investors are clearly excited about what lies ahead. In fact, a commenter in my previous article detailed some very interesting points as to why this represents exciting times for Microsoft. Among them are the following:

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