The company that Bill Gates founded would like to tell you something: Microsoft (MSFT) is still very much relevant in the ultra-competitive technology sector.
Yes, Apple (AAPL) is a pop culture phenomenon, and late archnemesis Steve Jobs’ life will soon be featured in two major Hollywood productions.
But Microsoft recently announced plans to buy out VoloMetrix, a big data analytics firm with a specialty in organizational efficiency. With the acquisition, MSFT will incorporate the VoloMetrix analytics into the Office 365 platform, potentially revolutionizing productivity — truly riveting stuff, that.
The problem is, no one may care.
Like so many of Microsoft’s products, the intentions behind the VoloMetrix acquisition sound labored and cumbersome, the antithesis of Apple’s intuitiveness and desirability.
And while MSFT’s free-of-charge introduction of its Windows 10 operating system is so far considered a success in terms of user engagement, Microsoft does have a history of screwing things up — badly. The four updates made to Windows 10 within the first four weeks of release suggests that the jury is still out on whether the latest iteration can avoid the plague of its predecessor, Windows 8.
MSFT Stock Showing Weakness
Thus, the broad market corrections in the Dow Jones Industrial Average and the blue-chip indices came at quite an inopportune moment for Microsoft stock. No longer can the “dumb money” be expected to prop up the MSFT stock price based on brand recognition alone, with prominent analysts like Yale University professor Robert Shiller chiming in on some serious risk factors for the markets.
Year-to-date, the MSFT stock price is down more than 6% — a foreign place to be for Microsoft investors. Since the beginning of 2010 until the end of last year, Microsoft stock has averaged 11.4% in total returns annually. So far this year, MSFT shares average out to $43.86, which is only a little more than a 5% improvement over 2014’s price.
Although the declining performance in the MSFT stock price isn’t what one would call detrimental, Microsoft’s fundamentals also show signs of softening. After a stellar fiscal year 2014, in which Microsoft’s revenue jumped by 11.5% against the prior year, sales growth for FY2015 slowed a bit, to 7.8%.
But the nearer-term sentiment for MSFT stock is what investors should fear the most. It’s true that shares rebounded strongly off the Aug. 25 bottom. However, this appears to be in the context of a bearish pennant formation, or a technical pattern of narrowing consolidation combined with a declining trend in volume.
Both conditions accurately describe the current MSFT stock price dynamic. Should the technical harbinger play out, Microsoft could easily dip below the $40 mark.
Eventually, Microsoft will become an attractive investment that everyone can love, but for now, there are too many reasons why investors should be leery of MSFT stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
