Another Lost Decade for Microsoft?

By Thursday, February 7, 2013

Microsoft Craving AttentionBlackBerry (NASDAQ/BBRY;TSX/BB), formerly known as Research In Motion, surged 12% on Monday after an upgrade from Bernstein Research to an “Outperform” and a $22.00 price target. Market optimism toward the company’s newly launched “BlackBerry 10” (BB10) operating system and line of devices is driving some speculative money into the stock.

And while there’s some excitement around BB10, the same cannot be said for Microsoft Corporation (NASDAQ/MSFT) and its new “Surface” tablet operating on “Windows 8.” The Surface looks pretty good; but in my view, the price point is too high and well, Microsoft just doesn’t have a following in the lucrative and quickly growing mobile sector—that will take time.

The reality is that Microsoft’s glory days are over, and I doubt they will come back, based on what I’m seeing at this time. The Surface is not turning out to be a killer product.

Microsoft is no longer the stock that Wall Street craved in the 1990s, when the stock price traded at a record high of over $58.00 in December 1999. That was then. In the 12 years since, the maker of the Windows operating system has fallen by over 50%, and the stock, once held in high regard by institutions and retail investors, has become a non-factor in the technology sector, based on my stock analysis.

Microsoft, like many other companies in the personal computer (PC) market, is struggling with the sliding demand for PCs, as tablets accelerate in popularity, based on my stock analysis.

Revenues are estimated by Thomson Financial to grow eight percent in fiscal 2013 and 8.4% in fiscal 2014. My stock analysis indicates that these growth metrics pale in comparison with the new generation of technology growth stocks, such as Google Inc. (NASDAQ/GOOG), which is estimated by Thomson Financial to grow its revenues by 44.0% this year and 14.8% in 2013. Facebook, Inc. (NASDAQ/FB), which is trying to convince the market that it’s the real deal, is slated to grow revenues at 30.8% and 27.3%, respectively, for 2012 and 2013. (Read “Why Facebook May Be Ready for Prime Time.”) The reality is that Wall Street wants to see growth, and Microsoft is not delivering, according to my stock analysis.

My stock analysis suggests that the Windows 8 smartphones have some catching up to do. Microsoft has to convince smartphone buyers that the Windows 8 platform is superior to Apple Inc.’s (NASDAQ/AAPL) “iOS”, Blackberry’s BB10, and Google’s “Android” platforms, which are the market leaders, according to my stock analysis

Microsoft’s initial entry into the hardware market with its Surface tablet is looking decent; albeit, I wouldn’t be betting my money on success, based on my stock analysis.

While gaining market acceptance for the Surface tablet and Windows 8 smartphones will be a challenge, Microsoft cannot rest; Microsoft needs to go back to the strategy room. And according to my stock analysis, continued declines in the PC market will hurt the company more, and this could eventually lead to another decade of futility for Microsoft shareholders.


About the Author | Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »

  • AndersOlesen

    Amazing how many times you can write "my stock analysis" in such a short article. Is that an attempt at search engine gaming?

Sep. 4, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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