On 30 September 2018, Microsoft Corporation (NASDAQ:MSFT) announced its earnings update. Overall, analyst consensus outlook appear vastly optimistic, as a 89% rise in profits is expected in the upcoming year, against the past 5-year average growth rate of -5.0%. Presently, with latest-twelve-month earnings at US$18.8b, we should see this growing to US$35.5b by 2019. Below is a brief commentary on the longer term outlook the market has for Microsoft. For those keen to understand more about other aspects of the company, you can research its fundamentals here.
Can we expect Microsoft to keep growing?
The 32 analysts covering MSFT view its longer term outlook with a positive sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
From the current net income level of US$16.6b and the final forecast of US$39.9b by 2021, the annual rate of growth for MSFT’s earnings is 13%. EPS reaches $5.63 in the final year of forecast compared to the current $2.15 EPS today. Growth in the bottom line seems to suggest reduction in costs rather than purely top-line expansion as earnings is increasing at a faster rate. In 2021, MSFT’s profit margin will have expanded from 15% to 27%.
Future outlook is only one aspect when you’re building an investment case for a stock. For Microsoft, I’ve put together three important aspects you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Microsoft worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Microsoft is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Microsoft? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.