Years ago, Microsoft (NASDAQ:MSFT) was affectionately referred to as Mr. Softee on the trading floor and by Jim Cramer. I say affectionately because I don’t think there was anything malicious meant by the nickname for MSFT stock at the time. I think it was simply a play on words with the company’s ticker symbol.
Regardless of whether the nickname was mean or not, over the last few years, Microsoft has been a model of consistency. Microsoft stock has moved higher with very little in the way of sharp moves to the downside. Since the beginning of 2016, there have only been two instances where Microsoft stock dropped in two consecutive months — February and March of 2018 and January and February of 2016.
The weekly chart shows the move over the last two and a half years with the help of a Raff Regression channel. What the Raff Regression channel shows is a regression line with an upper and lower rail. Those outer rails are placed equidistant from the regression line based on the high or the low.
You can see that the upper rail and the lower rail were both touched within the last few months. Using a different charting tool on a different platform, I drew a standard deviation channel for MSFT stock to see how tight the channel has been since May 2016. In order to get the outer bands of the channel to actually touch any of the price points from the last two and a half years, I had to set them at 0.5 standard deviations. The standard setting is 2.0.
What this tells us is that the MSFT stock price has trended higher for the last two and a half years with very little deviation away from the middle point represented by the regression line. In other words, it has been extremely consistent in its climb higher.
MSFT Has Been as Consistent as Its Stock
While the MSFT stock price has trended higher in a consistent manner, the company itself has been very consistent with its earnings and sales growth. Over the last three years, Microsoft has averaged annual earnings growth of 18%, while sales have grown at a rate of 10%.
In the most recent quarterly report, Microsoft saw earnings jump by 36% and sales were up by 19%. And this was in a quarter that saw a number of tech firms miss on their earnings-per-share estimates or their revenue estimates.
Analysts estimate earnings growth of 15% for 2018 as a whole, with sales growing by 12.7%. Just as Microsoft stock hasn’t strayed too far from the mean, these estimates are pretty close to the averages over the last three years.
As for MSFT’s profitability measurements, the return on equity is at 35.5% with the return on assets at 8.6%. The management efficiency measurements show a profit margin of 33.1% and an operating margin of 31.7%.
Bottom Line on MSFT Stock
While an investment in Microsoft stock might not be as sexy as an investment in one of the FANG stocks, the consistent performance has been rewarding over the last three years. From the beginning of 2016 through the end of June 2018, Amazon (NASDAQ:AMZN) gained 151% and fellow FANG member Netflix (NASDAQ:NFLX) gained 242%. Microsoft gained 88.4% during this period and Facebook (NASDAQ:FB) gained a similar 85.7%. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) lagged the others, but still gained 44.8%.
Since the beginning of July, all four of the FANG stocks are down, while Microsoft stock is up 8.07%. Facebook is down 22.6% and Netflix is down just over 21% since the end of the second quarter. This is where the consistency of Microsoft has paid off.
During the current earnings season, all four of the FANG stocks beat on their EPS estimates. However, all but Netflix missed on its revenue estimate and that has taken a toll on these stocks. In the meantime, boring old MSFT stock beat on both the top and bottom line — something it has done on a regular basis for as long as I can remember.
Another thing about Microsoft that might seem boring, but is also attractive, is its price-to-earnings ratio. It is at 25 right now and that is below its average for the last three years. When you consider that Amazon and Netflix both have P/E ratios over 100, Microsoft seems like a much less risky investment at this time.
I look for Microsoft to continue doing what it has been doing — climbing higher and not getting to far away from that regression line. The fact that the MSFT stock price just dipped farther below the regression line than at any point in the last few years suggests that you could be looking at a buying opportunity at this time.
As of this writing, Rick Pendergraft did not hold a position in any of the aforementioned securities.