Despite being down nearly 15% year-to-date, Microsoft remains relatively attractive for good reason.
First of all, the Redmond Washington based technology giant appears to be cheap. Its valued at 12 times projected profits of $2.05 in Microsoft’s current fiscal-year and is currently trading at approximately 11 times projected profits of $2.28 in its 2011 fiscal year and a little more than 10 times estimated calendar 2011 earnings.
Secondly, Microsoft has an extremely solid balance sheet sitting on net cash and short-term investments of $34 billion, which enables the company to expand into new businesses and focus on innovation with relative ease.
Thirdly, an upward trend in demand for computers will likely provide positive support for Microsoft. Businesses are starting to upgrade IT infrastructure, which includes upgrading operating systems, and consumers around the globe are increasing their desire to seek personal computers. This will benefit Microsoft because nearly 9 in every 10 computers operate on a Window’s operating system.
Lastly, Microsoft’s massive investment in the Internet business appears to be paying off. The company’s Bing search engine has drawn significant appeal and continues to gobble up market share from its rivals. In fact, at the end of May, Bing’s piece of the search engine pie rose to nearly 12.1%.
Despite showing many signs of prosperity, it is equally important to consider the inherent risks involved with investing in Microsoft. To help mitigate these risk the implementation of an exit strategy which identified specific price points at which a downward trend in Microsoft is likely to occur is of importance.
Microsoft closed at $25.66 on Friday and according to the latest data at www.SmartStops.net, has a price point of $23.98. This price point changes on a daily basis as that it is reflective of market volatility and conditions.
Disclosure: No Position