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Microsoft: 20% Off Highs, But Still Not A Bargain

May 01, 2022 9:00 AM ETMicrosoft Corporation (MSFT)ATVI82 Comments
BeanKounter Capital profile picture
BeanKounter Capital


  • Microsoft has sold off to start 2022 along with the other big tech names.
  • They have made several acquisitions to add new products and services to their offerings.
  • The Activision acquisition offers an interesting arbitrage opportunity.
  • The valuation is too expensive at 31x earnings, and the yield of 0.9% isn't much to get excited about.

French headquarters of Microsoft, Issy-les-Moulineaux, France

HJBC/iStock Editorial via Getty Images

Investors in big tech companies over the last decade have had explosive returns driven by liquidity, low interest rates, and passive index investing flows. The wheels have started to fall off the big tech trade in 2022, with Facebook (

This article was written by

BeanKounter Capital profile picture
You can find me on Substack at Kontrarian Korner: CPA and former Big 4 auditor. I break down investments in qualitative and quantitative terms, and I look for investments that will compound my money over the long term.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ATVI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (82)

I have to laugh at the conclusions about MSFT et al being lower and, somehow, this fact creates a whirlwind of B.S. completely meaningless theories. There's at least one answer WAR with bizarre threats to use Nuclear and Chemical weapons to threaten, intimidate, and paralyze Europe into putting up with Stalin's spawn, Putin.

That may be a huge reason why The Market, known for knee jerk reactions when any FED governor hiccups, now imagine the impact of events that really do mean more than a Fed gov with hiccups.

LOL - amazing how many ridiculous these half-baked theories Authors on SA dream up for a penny a pull.
If you are a long term holder MSFT is a great place to be.
kiar97 profile picture
Beankounter capital: You are basing your article on valuation and you rate AMZN as a better buy than MSFT. You lost me there. In the current scenario of inflation and compression of multiples, AMZN can never be a better buy than MSFT. And you do not want to own MSFT, but want to own AMZN. Good luck to your readers.
BeanKounter Capital profile picture
@kiar97 If you used earnings to evaluate Amazon you missed the explosion in cash flow it has produced over the last decade. They are wrapping up an investment cycle in the business and I prefer the business segments they have to Microsoft's. My guess is that Amazon will outperform Microsoft over the next 5 years, but we will see.
@BeanKounter Capital - its not about Amazon's last decade, its about Amazon's next decade...and it doesn't look like Amazon's next decade will be that great compared to other opportunities out there.
BeanKounter Capital profile picture
@TurboRocker Compared to other big tech companies I think Amazon will fare better than most, especially Facebook. The other businesses should do fine, but the stocks could be a different story.
As Warren Buffet once said. If company is overvalued than they should not buy back a single share. And Microsoft is very overvalued. They should pay dividends instead.

If this will return to fair value as it will surely sooner or later it will be proven as a huge burning of value for shareholders. Just look on buybacks of Paypal from last year how dumb they look now and could buy 2x times the amount of shares now.
@Peretepradlo Which blue chip stock is not overvalued?
jerseyvalueinvestor profile picture
@usermichael MMM, IBM, BAC, INTC, VFC

just off the top of my head

throw in some sub 10 pe with 6% div

No Guilt profile picture

Cheap doesn’t mean value.
Inflation takes a toll on disposable income, no doubt about it. However and perhaps unfortunately, Inflation raises share prices.

While the television pundits continuously harp on what actions THE FED will take to destroy the economy.

Well, War is a black swan, especially when it's unprovoked and a new low in brutality, savagery. and a complete lack of mercy, even to women, children, and the elderly.

Democracies have no choice now that STALIN has been reincarnated under the name of Putin who is a complete mass murderer that has to be stopped, NOW.
@combatcorpsmanVN The USA is fighting once again a war that it has started with its own folks. I hope it wont get a desaster, so some peace talks would be better than weapons.
When weapons are better than peace talks than Putin has to play his aces ... :-/
@combatcorpsmanVN Inflation does not raise share prices. Only higher earnings per share raise the share price in the long term. The opposite is actually true and thats why all high inflationary periods in the past were very bad for stocks. We have highest inflation since 1970's and index than bottomed around PE 8.
No Guilt profile picture

We are borrowing billions of dollars to send weapons for peace.

Weapons for peace

And if you don’t like it the ministry of truth will ban you.
wigan4 profile picture
It's one of the best companies in the world; it doesn't need to be a 'bargain' unless you're just trying to flip shares.
BeanKounter Capital profile picture
@wigan4 My point is that if you are buying at current prices returns are likely going to be pretty weak unless the projections are much lower than actual earnings.
@wigan4 the point is about valuation not the company.
@wigan4 Even best companies in the world make zero profit to shareholders if you overpay for them.

Walmart is the best and it made zero returns to shareholders for 14 or so years. Dead money even company still grew 10% per year and overcome financial crisis as nothing happened. People simply paid too much.

Well even Microsoft was dead money for 16 years not even counting inflation since it last traded at such elevated multiples. People who dont learn from history are doomed to repeat it and ar not much smart.
Is Fast graphs now the official determination of stock valuation? Seriously, should everyone just use fast graphs to settle these question? According to that graph, Microsoft should be valued at about $150? That is preposterous...
Investing for Freedom profile picture
@ocbearclaw fastgraphs works most if not all of the time in the long term, better than most subjective and hopeful assessments.
BeanKounter Capital profile picture
@ocbearclaw FastGraphs is just a visual tool. You can shorten the timeline to see what the valuation is like more recently (5 years, 10 years, etc). If you think 25x earnings is a fair value, we still have double digit downside from the current price.
@BeanKounter Capital Valuation is in the eyes of the beholder. Up to now it was FOMO.
Michink profile picture
I'm not a Microsoft shareholder but Microsoft is so much better than Amazon as an investment. Amazon has a forward P/E of over 160 and pretty much stopped growing aside from their cloud business.
Google and Microsoft are the best among the Big Tech companies in my opinion
@Michink I agree 100%.... Google is criminally under valued and I much prefer Microsoft over Amazon... The Amazon PE is screaming red flags...
@Michink I also agree 100%. MSFT? I have 20% of my money in it. not because I bought so much-=-but because it has gone up about 350% since I bought it approx. 5 years ago. Amazon? 160% increase. MSFT has been TWICE as good (literally) as AMZN. These are just the facts for me now--as I prepare to sell MSFT. 50% for now. I think everyone can agree that MSFT has done better than anticipated 5 years ago. It's done almost as well as APPL--at a 323% gain. close enough for me to call about even.
But the time has come to sell 50% or more. To take the profits NOW (in the next few weeks) is the right move as I have lost so much in 2022. thus I won't have to pay big taxes on the big capital gains. and it feels good to REALIZE such big profits from a 5-year investment.
MSFT WILL bounce though. and I bought my first 300 shares of ATVI last week. 75$? I have not heard any good reason that this deal will not go through. so why not buy shares of " MFST" at 75$ in the form of Activision? Is this any kind of real gamble? If anyone thinks so--let me know!
@ocbearclaw and MSFT has increased about twice as much over the last 5 years as both Amazon and Google. APPL 323% MSFT 302% GOOGL 148% and AMZN 166%. the 4 largest corporations on Earth. that's a big chunk of NASDAQ.
Big Game James profile picture
Overvalued? Based on what? P/E ratios? FAST Graphs? As we all know, valuation is a subjective thing. That's why Investment Research outfits can have such wildly different OPINIONS as to a company's valuation. For example:

The ever-stodgy and conservative Morningstar has MSFT's fair value at $352.00 which translates to a 21% discount to the current price. Trefis sets the MSFT valuation at 361.22 based on the sum of all its segments. Even GuruFocus gives a valuation of 295.30. I could go on, but the point is valuation is just a guess. And educated guess, mind you. But still a guess.

I don't know the formula for Chuck Carneval's FAST Graphs "Normal P/E" if a stock has traded at an elevated P/E for the last 5 years, shouldn't the "Normal P/E" be adjusted accordingly. Going back 20 years doesn't seem relevant.

Current sentiment is hammering high P/E stocks. The drawdowns are substantial and may get worse. From a technical point of view, MSFT is below both its 50-day and 200 moving averages. This means it's not a good time to buy because it is still in a downtrend. But if MSFT is a core position in a "buy and hold" portfolio, it still might be a decent buy combined with averaging down. And when the SENTIMENT (which ultimately controls stock prices) changes, it may come roaring back.
@Big Game James Fast graphs is a very useful tool - similar to Value Line's charting - but has its limitations also. MSFT has transformed into nearly entirely a cloud/subscription business model. Cloud businesses like AWS carry extremely high valuation estimates given their decades of future growth albeit at slowing growth rates over time. Morningstar might be right. For me, this stock is a hold at this valuation and with these prospects. I am concerned that cloud business valuations might be too optimistic but not yet willing to discount them either. WD
@Big Game James you sound like the people during the dotcom and 2008 recession who adamantly proclaimed that high PE is the norm. Then they learned
Big Game James profile picture
@Finding Your Retirement The dotcom bust was fueled by non-revenue startups that ran up without any basis. And the 2008 Great Recession was caused by sham mortgages that nearly collapsed the financial system. Are you SERIOUSLY comparing present-day Microsoft (a rock-solid company) with either? I mean, really?
Only a Bean counter counting yesterday`s beans would look back instead of forwards.
Microsoft was expensive at $20, $30, $50, $100, $200 and so on.
Rather wait until it reaches $400 - it will still be expensive!
Microsoft with its Armoury of products that really work and a Management Team led by Mr Nadella, in the foreseeable future will be a solid long term investment.
BeanKounter Capital profile picture
@Tom Gielink I bought it a while back and sold at $330. The stock might keep going but the opportunity cost of owning Microsoft is too high at current valuations. Also you're wrong on it being expensive in the past at 20 or 30.
The most you can pay for a great and a huge company like Microsoft is 25PE.
Investing for Freedom profile picture
@Cash Flow Assets that sounds about right. At the end of the day, valuation still matters.
@Cash Flow Assets GOOG trades at 21 PE and grows top and bottom line at pretty similar pace as MSFT
@Cash Flow Assets but I have owned it for 5 years. I am 62. I'll sell 50% of it and take the cash. buy a piece of land. something I can touch. Thank God for MSFT! 350%+ WIN. And I am buying ATVI at 75$. ---so i may be increasing my MSFT holdings but still selling 50% of my shares now (see how it grows----anyone who wants to own MSFT should buy Activision NOW. 20$ a share profit is 12-13 months. 99% guarantee??
Murad Shawar profile picture
Msft should buy TDOC and incorporate it through every pc
RSI Raistlin profile picture
@Murad Shawar lol no thank you. TDOC is bankruptcy bound. Wrote off over 1/3 of the company but kept the debt. MSFT can pick the parts it wants in 2-3 yrs from TDOCs chapter 11.
Murad Shawar profile picture
@RSI Raistlin TDOC isn’t going bankrupt telehealth is here to stay buddy right value for TDOC is 10$
@Murad Shawar TDOC, another pandemic hype stock that people fawned over.... Anyone who bought this overpriced stock should have their stock picking privileges revoked...
MSFT like many growth companies the stock price got ahead of fundamentals in an accommodative market. The only metric that I see which has changed is the markets evaluation of stocks in a different economy with inflation, rising interest rates and a terrible way in Ukrainian. I own stocks for the company and MSFT offers a. 200 billion dollar revenue stream that is growing an incredible double digits. They have current earnings around 70 billion and also growing double digits. FCF is close to 65 billion and also growing along with the $2.48 dividend. Debt free, buying back stock and making cash acquisitions that so far have been successful. Finally they have a cloud based product Azure that they are cross selling to large corporate clients which is growing at almost 50%.leading to the premise that growth will be sustainable . Overvalued in today market probably but where will the stock be in 3-5 years. Earning of around 9.50 could double to $19.00 making the current price a 14.5 PE which at even 20x portends to a $380 stock. If you own hold and if not this is a good place to consider an entry point
@Jlexus1953 there's growth companies and there's growth companies who at the same time are also critical infrastructure and subscription providers of affordable productivity increase software who rake in tens of billions of free cash flow annually.

Growth companies might provide a quick way down, but if Microsoft is rerated to "acceptable" P/E ratios for companies who run cyclical zero-moat business with high leverage, I'll just sell my apartment and buy everything I can.
@Kerfuffle Finn thanks for the lucid reply and hopefully you can keep you apartment and still enjoy some financial rewards from Microsoft. I do think the trend is more focused to go up than down
I think that MSFT is a company with a great future, but I agree that it is now seriously overvalued.
a safe heaven for me with the balance sheet being a FORTRESS!!!
What are your thoughts on Amzn?
@jc4877 short time trouble long term possibilities. Everyone loves Amazon
@jc4877 I know too many good people leaving Amzn HQ. I see more troubles ahead and am staying away.
BeanKounter Capital profile picture
@jc4877 Wall Street didn't like earnings but I don't own Amazon for the short term. Fast forward a couple years and returns could be pretty good from here.
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