Microsoft shares (MSFT) have surged more than 6.50% in the last six trading sessions. The current pps is at $44.53, which puts the stock to its highest level since March 24, 2000 following reports that the company will lay off 18,000 workers. But to put the gains in perspective, Microsoft shares, which have mostly bounced between $20 and $40 over the past 14 years, have been on a tear since August 2013, when former M’soft CEO Steve Ballmer announced his retirement, surging nearly 25% on a year-over-year basis. Microsoft’s ticker is now up more than 19% year-to-date.
Ballmer must be scratching his head over this one. Microsoft’s pps is now higher than it was for the bulk of his tenure as CEO. In fact, and as MW’s Tomi Kilgore points out, the software giant’s stock plunged “33% while Steve Ballmer was chief executive, from Jan. 13, 2000 through Feb. 4, 2014, compared with a 3.9% decline in the technology-heavy Nasdaq-100 index over the same time.”
“It’s been a decade of pain,” analyst Daniel Ives at FBR & Co, was quoted as saying to MarketWatch. Nadella [a longtime Microsoft executive who took over for Ballmer last month] is just “cleaning up part of the mess that Ballmer left behind” at the company.”
So while announcing the biggest layoffs in the co.’s history may seem harsh, Ives said it’s exactly what investors want, and what the company needs. Ives thinking is in line with Nadella who in an email posted on Microsoft’s website said “Making these decisions to change are difficult, but necessary.”
“Now you have a general, and he’s not wearing rose-colored glasses,” Ives said. “He’s putting [Microsoft] on a path to be, yet again, a major technology player.”
From a technical perspective: despite its strong price appreciation, MSFT still has enough fundamentals that will further drive the stock upward. Currently, ticker of the $368 billion company is valued at a forward P/E of 15.52x and has long-term earnings growth expectation of 6.90% annually over the next five years.
MSFT is trading safely above a strong support line, and it is in a newly created uptrend channel. A move toward $50 is almost guaranteed, whereas a move above that level could take this stock on a new uptrend to mid-$50s. Obviously, the chart will have its share of volatility, but the trend is definitely going in the right direction. The price recently broke out on huge volume of 82 million, which exceeded its three-month daily average of 29 million.
We believe the stock has all the catalysts it needs to hit the $60 level in the next 4-6 quarters, as the firm successfully continues its transitions into a devices and services company.
Disclosure: No Position