Stock pick – Microsoft

Mia Kruger from Kruger International said Microsoft is a good investment in the current economic climate because of its strong annuity income, making it recession-proof.

Microsoft is an American multinational technology corporation that develops software, services, and hardware devices. The company currently has offices in over 100 countries.

It generates most of its revenue by developing software, licensing, support services, hardware sales, and online advertising.

Microsoft’s most profitable products include server products and cloud services, Office, Windows, and gaming.

It was founded in 1975 and has grown into the second largest technology company in the world, with a market cap of $1.89 trillion.

Kruger said there are currently many opportunities in the tech space after the significant sell-off this year.

Microsoft is uniquely positioned in the global economic slowdown as companies don’t generally cut their software costs when business is slowing down.

A large portion of its income is annuity bases through its subscription products, which makes it relatively recession-proof.

Kruger said Microsoft has a strong balance sheet, and she feels comfortable buying it at a price-to-earnings (P/E) ratio of around 20.

A closer look at Microsoft

Technology stocks have come under severe pressure in 2022. The Nasdaq-100 technology sector index experienced a 34.78% decline year-to-date.

Microsoft is no exception. The stock price declined from $334.75 per share to $253.25 per share – a 24.35% decline year-to-date.

Microsoft share price in 2022

Microsoft is a strong revenue generator and has grown its revenue consistently since 2016. Its average revenue growth over the last six years was 15.2% per annum.

Microsoft also has strong cash generation, with its cash and cash equivalents and marketable securities exceeding its total debt with a cash-to-debt ratio of 1.7.

Therefore, the company can cover its debt with only its most liquid assets.

Microsoft revenue from 2015

Microsoft’s average P/E ratio over the past three years was 31.24 times.

However, the recent technology sell-off has brought its P/E ratio down to its current level of 26.27.

If the stock’s P/E multiple reverted back to its 3-year average at current earnings, its share price would rise to $303.07 per share – a 19.7% return.

Microsoft P/E ratio since 2019


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