Here's the Price at Which I'd Buy Microsoft Stock
Earnings jumped 22% last fiscal year. Why would I still want the stock around 12% cheaper?
Microsoft's stock is currently trading near $530, having reached a record high of $543.45 just a few weeks ago. The company's adjusted earnings per share have risen 22% for fiscal 2026, which ended in September 2026. However, shares now cost about 31 times those earnings, which is a high valuation. I believe the fair price for Microsoft stock is around $465, which is roughly 12% below its current trading price.
Microsoft's fiscal 2026 was impressive, with revenue growing 18% to $331.8 billion and operating income climbing 21% to $155.2 billion. However, the stock price already reflects much of this growth, as Microsoft is trading at about 31 times its fiscal 2026 adjusted earnings. The premium for Microsoft's valuation is more justifiable when considering the company's earnings growth rate of 22% year-over-year.
Microsoft's guidance for the September quarter suggests slower growth, with revenue expected between $89.85 billion and $90.95 billion and operating income growth slowing to around 14% to 17%. The company has been spending heavily on capital expenditures, with free cash flow decreasing by about 6% to roughly $67 billion. My target buy price for Microsoft stock is around $465, which is a 12% discount to its current price.
This price corresponds to a price-to-earnings ratio of about 27 on trailing adjusted earnings, making it comparable to the S&P 500's valuation multiple. If Microsoft's earnings growth cools toward the mid-teens and capital expenditures continue to rise, I would consider paying a lower price-to-earnings ratio, potentially bringing my buy price down even further.
Based on the upcoming earnings report on October 28, I would not purchase Microsoft stock at its current price of around $530. A strong report might justify a higher buy price, and shares may not drop as low as my target price of $465. However, at a valuation of 31 times adjusted earnings, the stock has already accounted for many of its positive developments.
I believe Microsoft's stock is overvalued at its current price and would consider buying closer to my target price of $465.
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