Microsoft’s Stock Is Boring Yet Tempting

With shares of Microsoft Corporation (NASDAQ:MSFT) trading at around $27.88, is MSFT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

If you invested in Microsoft three years ago, then you have gone absolutely nowhere. The stock is up 0.65 percent over a three-year time frame. At the same time, Microsoft currently yields 3.40 percent. Therefore, you have been making some money with very little downside risk. After all, capital preservation should always be the top priority. If you’re expecting to find news that Microsoft’s stock is going to skyrocket, then you’re in the wrong place. As it’s often stated, owning Microsoft’s stock is like watching paint dry.

Q2 EPS came in at $0.76 versus an expectation of $0.74. Revenue came in at $21.46 billion versus an expectation of $21.54 billion. However, this was an improvement on a year-over-year basis. Microsoft attributes much of its revenue boost to corporate demand. Businesses are upgrading their Windows and server software, and it looks as though Microsoft’s business is changing right before our eyes.

Sales in the Windows division increased 24 percent to $5.88 billion. However, Windows PC unit sales decreased 6.4 percent. This was the first decline in five years, and it’s not a great sign of things to come. That said, Microsoft has many revenue streams, and it’s a company with exceptional cash flow. There will always be innovation and acquisition opportunities to fuel growth. With Microsoft, it’s never substantial growth, but you almost always know what you’re going to get: slow and steady returns.

Let’s take a look at some important numbers…