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Apr 29 2011  / Microsoft Stock Symbol - MSFT

Microsoft Third Quarter Earnings

Latest Microsoft Stock Report - Part 1



Overview Of Microsoft's 3rd Quarter Earnings


Microsoft earnings jumped 31% for the third quarter over the same period last year to $5.23 billion and Microsoft stock prices moved from a low of 26.40 to a high of 26.87 on the news. Microsoft stock prices have been waning as of late . Earnings came in at .61 cents a share versus last year's .45 cents a share, however overall for the first time, Apple's earnings outpaced those of Microsoft. Microsoft stock has worked its way higher in the last few sessions in preparation for the third quarter results. After hours the initial reaction was good. The latest Microsoft stock quotes were running at 26.87 when I wrote (Apr 28 2011) this article. I expect Microsoft stock quotes will be back to below 26 tomorrow (Friday Apr 29) after many analysts have a field day with the Microsoft financial earnings report as there is some details in the third quarter results that may alarm some investors.


The chart below shows Microsoft stock prices since the beginning of the year. Those who buy Microsoft stock must be disappointed. Those of us who sell Microsoft stock options must be delighted. Today's collapse in Microsoft stock value just follows Microsoft stock history patterns. Run up on the news and then sell after it. The chart below shows Microsoft stock history since January 2011. The clear run up in prices to yesterday's earnings announcement from just a few session ago is very evident.



Microsoft stock though has not had a stellar 6 months and in my report I am going to review where I think the stock is headed or at least the best strikes I can continue to sell Microsoft stock options at. For the first time I may combine my selling puts with selling calls to my Microsoft stock options strategy. For those who buy Microsoft stock, this report may assist in determining points where you could buy Microsoft stock and sell it perhaps multiple times during the year. Insider reports show that many company directors continue to buy Microsoft stock and sell the stock at various prices and at various times so there does not seem to be any pattern with regards to Microsoft earnings and Microsoft stock prices. Of particular interest is the story that earnings are telling about the overall PC market in general and Microsoft in particular.


Sales of the windows 7 operating system continue with the highest numbers of all Windows operating systems to date but they are still down by around 3%. Microsoft earnings show that the core operating system sales are slipping. This has to be a clear indication that the consumer is making a shift to tablets like the Apple Inc. ipad and the Research In Motion Playbook which do not require the Microsoft operating system. Meanwhile Microsoft's version 8 of the windows operating environment is being designed to also run on tablet pc's but it remains to be seen how soon it will come out.


The big change is with the gaming division where the Kinect home controller made huge inroads as revenue on gaming items was up 60 percent and more than 2.4 million units were sold in the third quarter alone.


Office 2010 is the fastest selling office version yet and sales were up another 21 percent. However Bing and MSN portal saw its revenue up 14 percent but still posted a loss of 726 million. This unit continues to lose money quarter after quarter for Microsoft and it is questionable in my mind how long Microsoft will keep allowing these losses.


So this brings me to where I think Microsoft's stock may go from here. Let's review the Microsoft Stock Report by looking at some of the fundamentals of Microsoft.

Earnings are at $2.36

Book Value is $5.77

Cash Flow is an impressive $2.76

Price/Earnings is at 11.2X

Price/Cash is at an impressive 9.6X

Gross Profit Margin is an incredible 79.16%

Profit Margin is also incredible at 30.84%

How about Management Effectiveness?

Return on Assets is at 23.59%

Return on Investment is a very nice 33.07%

Dividend Yield at the time of writing this article is 2.43%

The Payout Ratio is a very healthy 24.1X which tells me there are years of dividend payments ahead

Financial Strength is also impressive

Debt To Capital is 11.40%

Market Cap is presently at 221.7B (it fluctuates with the stock valuation)

Microsoft Stock Quotes: 52 week range $31.43 - $22.73


So while it's not all good news from Microsoft, earnings are up and things remain solid. The fundamentals show a very strong company and the Microsoft Stock Dividend is very good and continues to increase yearly..


The earnings chart below from my Microsoft Stock Report shows the Microsoft stock history for the 5 years. The earnings back in 2007 were not nearly as good as present earnings these past few quarters yet Microsoft stock is not rising. Today the stock closed at 26.87 and then sold off after hours when the earnings came out, which is typical of stocks as they run up during the days leading to earnings. The earnings chart is not particularly encouraging for investors who are seeking a rise in the stock valuation. As a stock continues to earn more, the stock should climb, but Microsoft is different. Investors remain worried about the future and with that worry comes hesitation. There is no rise in this stock and looking out, I believe that Microsoft stock history for the past 5 years will remain constant - the trading range will continue.


You can tell just quickly looking at the chart that as long as those who buy Microsoft stock do so on the dips as it were, they will have done well. Those who buy Microsoft stock without looking at the Microsoft stock prices history, do so at their peril and could be end up with losses. The Microsoft stock chart below tells the story about Microsoft stock valuations. You can readily see the importance of looking at charts. A historical perspective tells me there is no need to buy this stock over $26.50.  Continued In Part 2




Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
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