Microsoft (MSFT) is up from $27 to $36 this year. The company. made $2.69 in 2011 and is expected to make less, $2.67, in 2014. The P/E was around 9 or 10 and now it’s 13. I just don’t see it.
In September MSFT decided to purchase substantially all Nokia’s Devices & Services business. This purchase will likely drag on earnings, and this quarter estimates took a fairly good hit. Investors might be bullishly optimistic that this will help MSFT get into move people’s hands, via cell phones and tablets. But the transition will likely be rough, as we have seen with Google’s merger with Motorola’s business.
One Year Chart
In the end, stock growth follows profit growth, and MSFT doesn’t have the profit growth. Negative growth is expected for the next two quarters. Yet MSFT is at a 52-week high. I just don’t see it.
Fair Value
The stock’s also expensive. When I wanted MSFT last year the P/E was 9. Now it’s 13. I think MSFT is worth 11 times earnings, and it has traded there this year.
Sharek’s Take
MSFT gets a bulk of revenue from PC programs, and PC sales continue to decline. Maybe someday it can complete the transition into mobile devices, but that’s a long and winding road ahead. MSFT isn’t a stock for me.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
