Microsoft (NASDAQ: MSFT) shares have weakened from their record highs above $260, and the current price stands around $254. Microsoft reported better than expected third-quarter results this Tuesday, and according to the technical analysis, shares of this company continue to trade in a bull market.
Fundamental analysis: Microsoft reported better than expected third-quarter results
Microsoft reported third-quarter results this week; total revenue has increased by 19.1% Y/Y to $41.71 billion while the GAAP EPS was $2.03 (beats by $0.26). Total revenue has increased above the expectations (+$860 million), which represents the largest quarterly revenue growth since 2018.
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Productivity and Business Processes revenue rose 12%, while Intelligent Cloud revenue was up 20% on the year. Personal Computing segment revenue rose16% to $13 billion, and it is important to mention that Microsoft increased its guidance for the next quarter.
Microsoft expects the accelerating trends in four-quarter and, according to the management, gross margin should benefit from investments the company made a year ago. Many trends across all major segments continued to improve, and the pandemic has only solidified Microsoft’s position further.
“Over a year into the pandemic, digital adoption curves aren’t slowing down, they’re accelerating, and it’s just the beginning. We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform,†said CEO Satya Nadella.
Analyst firms remain positive on Microsoft after the third-quarter report; Citigroup maintained a “buy “rating with a $302 price target while BMO Capital raised its target from $280 to $290.
Despite this, the current risk/reward ratio is not good for long-term investors, and with a $1.97 trillion market capitalization, this stock is not undervalued. Microsoft trades at more than thirty times 2020 EBITDA, the book value per share is less than $18, and maybe it is not the right moment for investing in Microsoft shares.
The current dividend yield is less than 1% which is not attractive for dividend investors. Lots of positive expectations have already been included in the price of the stock, and there are certainly better long-term investment opportunities at the moment.
Technical analysis: Microsoft shares continue to trade in a bull market
Technically looking, Microsoft shares could advance again above the $260 resistance level in May; still, if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels.
The critical support levels are $250 and $240; $260, $270, and $280 represent the important resistance levels. If the price jumps above $260, it would be a signal to trade Microsoft shares, and the next target could be around $265, but if the price falls below the $240 support level, it would be a firm “sell†signal.
Summary
Microsoft reported better than expected third-quarter results this Tuesday, but maybe it is not the right moment for investing in shares of this company. Technically looking, Microsoft shares could advance again above the $260 resistance level in May; still, if the price falls below the $240 support level, it would be a firm “sell†signal.
