Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors are eagerly awaiting Microsoft's fiscal 2023 fourth-quarter results, which are scheduled to be announced on July 25. This report is expected to include the company's outlook for fiscal year 2024, making it a crucial event for assessing Microsoft's growth opportunities, profitability, and cash demand trends.
When considering Microsoft as an investment, three key factors set it apart.
- Diverse Business
Microsoft's strength lies in its diverse business offerings. Unlike other companies that may specialize in specific industries or technologies, Microsoft provides exposure to various growth niches, including enterprise cloud services, AI, productivity software, and more. Owning Microsoft allows investors to capitalize on multiple expansion opportunities under one brand, reducing the risks associated with being heavily reliant on a single sector.
- High Profitability
Despite some fluctuations in financial metrics since the peak of the pandemic in 2021 and early 2022, Microsoft remains one of the most efficient generators of cash and profits in the market. In the last quarter, the company achieved a 15% year-over-year increase in operating income, resulting in an impressive $22.4 billion in profit on $53 billion in sales.
As the report is released, investors should focus on these essential growth indicators and look beyond short-term sales volatility to assess Microsoft's long-term potential. The company's diverse business and strong profitability make it an attractive investment opportunity for those seeking stability and growth in their portfolio.
Only a few companies can match the impressive operating margin of 44% of sales achieved by this company. For instance, Apple currently boasts a 29% margin, while Amazon's rate is closer to 3%, and Palo Alto Networks has only recently achieved profitability.
- Pricey Stock
Regarding valuation, Microsoft is considered a pricey stock, as investors have to pay a premium for its valuable assets. Presently, Microsoft stock is valued at over 12 times its annual sales, comparable to the faster-growing Palo Alto Networks. On the other hand, Apple offers a relatively better bargain with a valuation of 8 times its sales, and Amazon is even cheaper at less than 3 times its sales.
Although there is a possibility that Microsoft's valuation may decrease in the coming quarters, particularly if the company reports disappointing sales results in late July or forecasts challenges in the upcoming operational year, the more likely scenario is that the business will continue to gain market share in various significant global tech industries. Additionally, the cyclical downturn in its operating system segment or consumer tech devices division is expected to be short-lived.
Considering Microsoft's bright long-term outlook, industry-leading profit margins, ample cash flow, and rising dividend payments, it emerges as an incredibly attractive stock to consider adding to your portfolio. For tech stock investors who prefer a less risky approach in a fast-moving industry, Microsoft provides an excellent opportunity to gain exposure to major trends while investing in one of the most valuable companies in the world.
As long as the price is above 330.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 345.10
- Take Profit 1: 355.00
- Take Profit 2: 365.00
Alternative scenario:
If the level of 330.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 330.00
- Take Profit 1: 315.00
- Take Profit 2: 300.00
