Microsoft on an 18-month low: Time to invest?

  • Microsoft stock fell Thursday to its lowest level since March 2021
  • Stocks are down 28.3% year-to-date and 31.1% from all-time high
  • Investors should consider buying the bottom

Microsoft’s (NASDAQ:) stock has struggled in recent months, hitting a series of new 52-week lows, as fears over the Federal Reserve’s aggressive plans sparked a steep drop in shares of many tech companies first class.

MSFT tumbled 28.3% year-to-date through Thursday, while the fell 21.2%.

With a market capitalization of $1.79 trillion, the Redmond, Washington-based software giant is the second most valuable company in the world, behind Apple (NASDAQ:).

Despite recent volatility, I remain positive on Microsoft and expect the stock to rebound in the coming months given its healthy balance sheet, strong free cash flow and highly diversified business model that helped weather tough economic times in the past.

Microsoft said $105 billion in cash and short-term investments, offset by $47 billion in debt. It has generated a free cash flow margin of 33% over the past 12 months.

Commitment to shareholder returns

The tech juggernaut has proven over time that it can sustain a slowing economy while offering investors higher payouts.

Microsoft’s board declared a quarterly dividend of $0.68 per share earlier this month, up 10% from the previous quarter’s $0.62 dividend.

It should be noted that the 10% increase in the dividend is higher than the current inflation rate, which stands at 8.3%.

The new dividend, which amounts to $2.72 per share on an annualized basis, will be payable on December 8 to shareholders of record on November 17 offering an annual yield of 1.14%, which compares to the yield of the Technology Select Sector SPDR® Fund (NYSE:) by 0.95%.

The latest dividend hike marks the 20th consecutive year that Microsoft has paid more annual dividends than the year before, underscoring the software giant’s continued commitment to returning capital to shareholders.

MSFT Dividend Growth

Analysts remain optimistic

Unsurprisingly, Wall Street has a long-term bullish view of Microsoft, according to a Investing.comwhich revealed that 47 of 50 analysts covering the stock rated it a ‘buy’, offering upside potential of 38.4%, thanks to robust demand for its cloud-based offerings.

MSFT Analyst Estimates

The average fair value of the Microsoft share on InvestingPro+ according to a number of valuation models implies an upside of 22.3% over the current market value.

MSFT Fair Value

Next results on October 25

Microsoft – which missed expectations on the upper and lower lines in the previous quarter for the first time since 2017 – is due to release its latest financial results after the US market closes on Tuesday, October 25.

Estimates expect the software and hardware maker to report earnings per share of $2.33 for its first fiscal quarter, up 2.6% from EPS of $2.27 a year earlier. .

Revenue is expected to grow 10% year-over-year to $49.8 billion, reflecting strong demand for its cloud computing products.

As such, the growth of Microsoft’s burgeoning Intelligent Cloud unit, which includes Azure, GitHub, SQL Server, Windows Server and other enterprise services, will be a focus.

The key segment saw sales growth of 20% in its latest quarter to $20.9 billion, while revenue from its Azure cloud business rose 40%.

Is it time to buy Microsoft stock?

In my view, the significant pullback in Microsoft stock has created a compelling buying opportunity given the bright outlook for long-term demand for its cloud business, software tools and hardware devices.

The company’s reliably profitable business model and huge cash stack have enabled it to focus more on returning more capital to shareholders, which further enhances its investment appeal in the current climate of bear market.

Disclosure : At the time of writing, Jesse has no position in the shares mentioned. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

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