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A Look at Microsoft’s Valuations

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Sep. 5 2018, Updated 9:30 a.m. ET

Microsoft’s valuation metrics

On August 23, Microsoft’s (MSFT) forward PE (price-to-earnings) multiple for the current year is projected to be ~24.3x. This is much higher than IBM (IBM) and Oracle’s (ORCL) estimated PE multiples of 10.41x and 14.23x, respectively. However, Microsoft’s one-year projected EPS stood at 11.7%, which is higher than IBM and Oracle’s EPS estimates of 1.4% and 7.9%, respectively.

On August 23, Microsoft was trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of ~14.31x. Among its peers, IBM, SAP, VMware (VMW), Red Hat (RHT), and Oracle had forward EV-to-EBITDA multiples of 8.48x, 15.36x, 15.57x, 23.89x, and ~9.67x, respectively.

From the graph above, we can see the EV-to-EBITDA multiple comparisons of Microsoft with its peers. However, Microsoft’s EV-to-EBITDA and PE multiples are lower than its industry averages of 15.47x and 22.92x, respectively.

The company has been riding on the success of its Azure Cloud platform, strong gaming business, and robust performance from LinkedIn. These solid results are driving the tech giant’s revenues and operating income.

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Bollinger Band

In the August 23 trading session, Microsoft stock closed at $107.06, close to its lower Bollinger Band level of $105.30. This value indicates that the stock is oversold, and investors could take it as a “buy” signal.

Stock price movement

In the last year, Microsoft stock has gained 46.34%. It’s trading 48.59% higher than its 52-week low of $72.05 and 3.68% lower than its 52-week high of $111.15. Moreover, its 200-day moving average stood at $94.54, which is lower than its current price, signifying the bullish nature of the stock. IBM and Oracle returned 3.0% and -0.93%, respectively, in the last year.

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