InvestorsObserver gives Microsoft Corporation (MSFT) a weak valuation score of 38 from its analysis. The proprietary scoring system considers the underlying health of a company by analyzing its stock price, earnings, and growth rate. MSFT currently holds a better value than 38% of stocks based on these metrics. Long term investors focused on buying-and-holding should find the valuation ranking system most relevant when making investment decisions.
MSFT's trailing-12-month Price to Earnings (PE) ratio of 35.1 puts it above the historical average of roughly 15. MSFT is a poor value at its current trading price as investors are paying more than what its worth in relation to the company's earnings. MSFT's trailing-12-month earnings per share (EPS) of 6.71 does not justify what it is currently trading at in the market. Trailing PE ratios, however, do not factor in a company's projected growth rate, resulting in some firms having high PE ratios due to high growth potentially enticing investors even if current earnings are low.
MSFT's 12-month-forward PE to Growth (PEG) ratio of 2.76 is considered a poor value as the market is overvaluing MSFT in relation to the company's projected earnings growth due. MSFT's PEG comes from its forward price to earnings ratio being divided by its growth rate. A PEG ratio of 1 represents a perfect correlation between earnings growth and share price. Due to their incorporation of more fundamentals of a company's overall health and focusing on the future rather than the past, PEG ratios are one of the most used valuation metrics by analysts today.
All together these valuation metrics paint a pretty poor picture for MSFT at its current price due to a overvalued PEG ratio despite strong growth. The PE and PEG for MSFT are worse than the average of the market resulting in a valuation score of 38.