After taking a hit last month for a historically infrequent and unexpected 4% drop in its flagship product, Windows, and a more recent negative reaction to purchasing Skype with no solid forward plan, we can see Microsoft (MSFT) is pretty well beaten down here, but not for lack of solid fundamentals.
(Click charts to expand)
MSFT beat earnings expectations by about 10% for each of the last 4 quarters, albeit, last quarter would have been right in line with estimates had it not been for a $0.05/share tax benefit. Its continuing income margin went down from last quarter's 33.2% to 31.8%, which is still up from 27.6% one year ago.
With a P/E of 7.8 after backing out tangible value (cash and equivalents minus debt), the ratio hasn't looked better in the recent history of the stock, save the dip below $20/share in 2008-09. Even though MSFT's share price has oscillated around $25 for the last 10 years, the actual profit to the shareholders has tripled while 32% of the 2001 share count has been bought back. And it's all happening very methodically.
Currently, MSFT is flirting with its 6-month low around $24.50, which it has bounced from 4 times already, creating a significant technical bottom. Today's move on lower-than-average volume is an indication of trend exhaustion and fewer sellers at this price.
I'm recommending a Buy at this $25 price point. Because we're currently very close to a technical bottom, I recommend a stop-loss at $24.20 if it crosses on high volume, followed by a repurchase once volume levels off.