Ignore the Analyst Warning on Office 365! MSFT Stock Is a Buy on the Dip

Daily Trade

Microsoft (NASDAQ:MSFT) stock tumbled on Monday after Karl Keirstead of UBS suggested that Office 365 growth could soften as the “work-from-home” benefits are starting to fade. Keirstead suggested that UBS analysts “now believe that it is prudent to begin modeling a gentle deceleration in commercial Office 365 seat growth given the combo of the pandemic/work-from-home boost fading and Office 365 penetration into the broader Office installed base now reaching 80%, offset by strong E5 traction and the price increase,”

I don’t think Keirstead’s finding is anything to fret about, and here’s why.

The United States’ total factor productivity (TFP) remains elevated, with the latest data showing a 6.88% quarterly increase, meaning that technology growth is still running hot. Furthermore, Microsoft’s dominant market position could see it sustain its current growth trajectory, even if systemic headwinds occur.

Microsoft’s experiencing staggering growth across all of its segments. The company’s commercial bookings have surged by 32% year-over-year, led by a spike in Azure’s popularity. Furthermore, the company’s cloud business is still head above shoulders, posting 32% revenue growth since the second quarter of 2021. Yes, the data points I just listed are backward-looking, but the point I’m trying to get across is that a miracle would need to happen for MSFT’s broad-based growth to disintegrate.

Many believe that MSFT is on its way to a correction as the stock is trading below its 10-, 50-, 100-, and 200-day moving averages. However, much of its recent drawdown is due to a broad-based market sell-off rather than idiosyncratic reasons.

Microsoft’s PEG growth ratio of 0.79x suggests that investors haven’t priced the firm’s earnings per share growth, meaning that we’re probably looking at an undervalued stock here.

I’d encourage my readers to stay away from the panic button and remain positive on Microsoft stock because at a near 15% year-to-date drawdown, MSFT is one of the best “buy the dip” opportunities out there.

On the date of publication, Steve Booyens held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London and is working towards his Ph.D. in Finance, in which he’s attempting to challenge the renowned Fama-French 5-factor pricing model by incorporating ESG factors. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, cryptocurrencies, crowdfunding, and ETFs.

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