In this article I am going to analyze Microsoft company, based in its earning per share and its (P/E) ratio to see how much its stock will worth in the 2027.
First, let see how does Microsoft EPS did in the past six year starting form 2017 in order to estimate its growth rate, as shown below:
As it seems from the above graph we can see that Microsoft EPS increased from 3.37$ in 2017 until it reached to 9.29$ in 2022 with slight drop in 2018, however, even with this slight dropped, Microsoft EPS increment is what the investors should look for. Based in the above data for EPS, it is fair to said the growth rate for Microsoft is 22.48%.
Now that we have the growth rate of Microsoft EPS in the last five years, we are going to use this growth rate to estimate what will its EPS be in 2027 ,which is five years from now by applying the following formula:
FV=PV(1+i)n
- Where
- PV = Microsoft EPS in year 2022 = 9.29 $
- i = growth rate of Microsoft EPS estimated above = 22.48%
- n = years of investment = 5 years in 2027
By substitute the numbers estimated early in the above formula, I end up with Microsoft’s EPS in year 2027 equal to 25.61$.
Now, I have to see what was (P/E) ratio that Microsoft did have in the last six years, which as shown below:
Now we can estimate two scenarios for Microsoft stock price which is Bull market and the bear market.
For Bull market , I am going to take the highest (P/E) ratio which was 45.04 in year 2018, to see what will be the price of Microsoft stock in 2027:
Bull market Microsoft Stock’s price in 2027= (45.04)*(25.61$) = 1,153.5 $.
For Bear market, I will take the lowest (P/E) ratio which was 20.78 in year 2022, to see what will be the price of Microsoft stock in 2027.
Bear market Microsoft Stock’s price in 2027= (20.78)*(25.61$) = 532.2 $.
As of writing this article, Microsoft stock price is 234.53$ which is below the bear market scenario by 126.9% which is really good margin of safety. Therefore, investing 10,000$ in Microsoft stock, will guarantee you a return of 22,692.2$ in 2027.
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