Down 25%, Is Microsoft Stock a Buy? – The Motley Fool

Down 25%, Is Microsoft Stock a Buy? – The Motley Fool

Down 25%, Is Microsoft Stock a Buy? – The Motley Fool 2048 1347 charlie

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Investors aren’t nearly as excited about Microsoft (MSFT -2.13%) stock as they were in previous phases of the pandemic. Although the tech giant enjoys dominant market positions in attractive software, cloud services, and gaming niches, shares are trailing the market in 2022 on fears of a major slowdown ahead.
With that big picture in mind, let’s look at a few reasons you might want to take advantage of the stock’s slump.
It’s clear that Microsoft’s business isn’t booming to the level it was a year ago. Sales growth slowed to 12% in the most recent quarter from 21% last year. Sure, a big part of that deceleration came from exchange-rate shifts. But Microsoft is also seeing weaker demand for productivity software and video games.
Like its peers, the company is seeing a growth hangover compared to soaring sales over the last two years. Some enterprise customers are slowing spending, too, which could pressure its cloud services platform over the next few quarters. Chief financial officer Amy Hood said the selling environment was “dynamic” in the fiscal fourth quarter, but that Microsoft still gained market share.
That market share position is a better indicator of long-term growth than quarter-to-quarter sales swings. Microsoft’s lead in areas like digital transformation, productivity, gaming, and cloud services will translate into higher annual earnings over time, even if the outlook is cloudy over the next few quarters.
And investors can look to the company’s stellar finances to bolster returns in the meantime. It generated a whopping $89 billion of cash flow in the last full fiscal year (ended in June), compared to $77 billion in fiscal 2021. Operating income was similarly strong, up 19%.
This financial strength means Microsoft won’t be under as much pressure as its peers to slash costs and perhaps underinvest in attractive growth areas like virtual reality, the metaverse, and game development. The company can afford to maintain profitability while still absorbing big acquisitions like its impending purchase of Activision Blizzard (ATVI 0.55%).
Cash returns will also be ample, as illustrated by the $12.4 billion that Microsoft sent back to investors last quarter through stock buybacks and dividends.
The stock price slump reflects the fact that Wall Street is focused on the next few quarters, which might be painful for the business, rather than the next several years, which are likely to bring major growth.
It makes sense to avoid some companies in a tough selling environment, especially if they rely on debt or don’t have a proven business model. Software businesses with declining market share are risky today, too.
But Microsoft has none of those weaknesses. It is positioned to lead in several areas that should see strong growth over the next decade. And it has the financial resources to weather an industry recession, should one develop.
These factors make it an especially attractive stock for investors seeing a balance between growth, cash returns, and moderate risk. Consider adding Microsoft to your watch list since its decline in 2022 makes shares more appealing today.

Demitri Kalogeropoulos has positions in Activision Blizzard. The Motley Fool has positions in and recommends Activision Blizzard and Microsoft. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/11/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.

Market data powered by Xignite.

source

    Would you like to receive notifications on latest updates? No Yes