Microsoft's Death Cross and P/E Ratio Analysis (Moving Averages, MSFT)

MSFT 50DMA/200DMA Cross
I see a death cross on Microsoft's chart (the 50 day moving average crossed below the 200 day moving average). The chart needs an injection of green volume at $24 support. Unless a positive catalyst presents itself, I'd wait for exhaustion and a solid base. As of today's close, MSFT is trading at 12.6x trailing earnings, 11.7x 2010 estimates and 9.64x 2011 estimates (S&P report/operating EPS estimates). The mid-range for MSFT's P/E over the years has been: 2009: 14, 2008: 14, 2007: 22.5, 2006: 21.5, 2005: 23, 2004: 36.5, 2003: 29, 2002: 39.5, 2001: 45, 2000: 47.  The earnings multiple is down 70% since 2000 and more than half the 9 year average (29.2x). It's interesting that the P/E mid-range found support at 14 in 2008 and 2009 (double bottom?).

So does MSFT at 12.6x and 9.64x 2011 earnings mean it's a cheap stock? The low ratio could be forecasting lower earnings going forward, which would normalize the ratio. Or everything could go as planned, 2010 earnings hit 2.03/share (S&P estimate), price fills the multiple and starts to price in 2011. I used to screen for undervalued small caps relative to earnings, book, sales, competitors and historical averages and chart out valuation ratios and financial trends to find potential opportunities. Technicals are then used for confirmation. I hope to post this type of info once the slow down or double dip ends.

Like I said earlier, MSFT needs to find support at $24 (mid 2009 highs) or base out at some point to provide support. With the death cross in tact, the 50 and 200 day moving average could act as tough resistance going forward.  $QQQQ (tech index), which I'll chart out next with other indexes, is sitting right on its 200DMA in a symmetrical triangle...!!!!!

MSFT (Microsoft Corp) - FreeStockCharts.com

Comments

  1. FYI, not sure the exact nature of these trades but check out the ISE top bullish put/call ratio for MSFT. It lost 4.11%, closed at $23.32 today and the ISEE ratio hit 888, Calls 11,993 vs. Puts 1,350. Volume traded over open interest on the July 24 Calls. http://www.flickr.com/photos/dvolatility/4747082800/

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  2. 6/30, MSFT on top ISE P/C again. ISEE 1,051, Calls 6,445, Puts 613. I see Aug 23 C volume was over open interest. Also, it was under option volume leaders at 11 at whatstrading.com, calls/puts 65/35. Wtf is up?
    http://whatstrading.com/2010/06/30/option-volume-leaders-as-of-1100-am-208/

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  3. Ahh, MSFT ending sales of Kin mobile phones less than 2 months after launch..

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