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Microsoft’s Stock Hasn’t Been This Expensive Heading Into Earnings In Almost 20 Years

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Microsoft will report fiscal fourth quarter results on July 23, and its stock’s valuation hasn’t been this high since the early 2000s.
Michael Kramer and the clients of Mott Capital own MSFT.
Microsoft Corp. (MSFT) has found itself in a position of strength as the coronavirus pandemic has swept across the globe. The company could be one of the biggest beneficiaries of the work and learn at home-movement. As a result, the stock has rallied sharply off the March lows and is now up nearly 29% in 2020, easily beating the S&P 500, which is flat on the year.
Still, the strong performance means that expectations are incredibly high going into the company’s fiscal fourth quarter results on the afternoon of July 23. Analysts have been raising their earnings and revenue estimates for the company since the end of April for 2021 and 2022. However, those rising earnings estimates have not risen fast enough to offset the soaring stock, sending its PE multiple to its highest levels since the early 2000s. It could even lead to shares falling by as much as 8% in the weeks to follow.
Analysts are estimating that revenue for the company rose by 8.25% in its fiscal fourth quarter to $36.5 billion, while earnings remained unchanged from last year at $1.37 per share. That is because gross profit margins are expected to slip to 68.

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