Microsoft Corporation (MSFT) Now Seems Drastically Overpriced Compared to Apple (AAPL)


While two of the most recognizable tech companies in the world, Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL) continue to rake in billions of dollars each and every quarter, one company’s stock is rising while the other falls. While shares of Microsoft Corporation (NASDAQ:MSFT) are up over 20% on the year, Apple shares will close out 2015 in the red. The problem, however, is that Apple, whose stock is dropping, is valued at less than a third of Microsoft’s when considering PE ratios. While Microsoft is trading at over 37.5 times earnings, Apple’s stock is trading at a PE of just 11.47. To make matters even more confusing is that Apple has approximately $205 billion in cash and cash equivalents on their balance sheet while Microsoft (NASDAQ:MSFT) has only about half of that.

Something doesn’t add up… Sure there is some concern by analysts and traders alike that Apple may in fact not grow its profits at all in 2016, but even if that is the case, Microsoft isn’t exactly known for their stellar growth either, and it could be easily argued that after 2016 Apple likely will be in a much better position then Microsoft is for continued revenue growth.

If one was to take Apple’s cash holdings out of the picture, their PE ratio would be a staggeringly low 7.5. That means that if the company was to make what they have been over the last year, for the next 7 and a half years and then shut down, investors would still break even at the current share price. Meanwhile, Microsoft would need to continuing earning the same as they did over the last year for the next 30 years before investors would break even. It can be argued that Apple’s shares are selling at approximately a 75% discount to Microsoft’s.

The stock is down 0.69% or $0.39 following the news, hitting $55.92 per share. Approximately 13.02M shares traded hands. MSFT shares have risen 18.67% since May 28, 2015 and are currently uptrending. It has outperformed the S&P500 by 20.80%.

From a total of 16 analysts covering Microsoft Corporation (NASDAQ:MSFT) stock, 12 rate it a “Buy”, 1 a “Sell”, and 3 a “Hold”. This means that 75% of the ratings are positive. The highest target price is $65 while the lowest target price is $20. The mean of all analyst targets is $52.86 which is -5.47% below today’s ($55.92) stock price. Microsoft Corporation was the topic of 32 analyst reports since July 22, 2015 according to the firm StockzIntelligence Inc. Goldman Sachs upgraded shares on December 18 to a “Neutral” rating. Vetr upgraded shares to a”Strong-Buy” rating and a $47.60 target share price in their report from a September 2. Raymond James upgraded MSFT stock in a recent report from November 30 to a “Strong Buy” rating. Global Equities Research maintained the rating on August 28. Global Equities Research has a “Overweight” rating and a $50 price target on shares. Finally, Piper Jaffray maintained the stock with a “Overweight” rating in a report they issued on a November 10.

The institutional sentiment increased to 1.08 in Q2 2015. It’s up 0.32, from 0.76 in 2015Q2. The ratio is positive, as 69 funds sold all their Microsoft Corporation shares they owned while 801 reduced their positions. 93 funds bought stakes while 843 increased their total positions. Institutions now own 5.20 billion shares which is 8.27% less than the previous share count of 5.67 billion in 2015Q2.

Cook & Bynum Capital Management Llc holds 25.5% of its total portfolio in Microsoft Corporation, equating to 717,081 shares. Rwwm Inc. owns 895,414 shares representing 19.69% of their total US portfolio. Moreover, Valueact Holdings L.P. has 19.37% of their total portfolio invested in the company, equating to 75.27 million shares. The California-based Smithwood Advisers L.P. has a total of 17.28% of their portfolio invested in the stock. Deccan Value Investors L.P., a Connecticut-based fund reported 2.26 million shares owned.

Since April 28, 2015, the stock had 0 insider purchases, and 4 sales for a total of $370.34 million in net activity. Gates William H Iii sold 4.00M shares worth $185.75 million. Turner Brian Kevin sold 69,158 shares worth $3.16M. Capossela Christopher C sold 4,485 shares worth $218,464. Brod Frank H sold 4,500 shares worth $215,294.

Microsoft Corporation is engaged in developing, licensing and supporting a range of software services and products. The company has a market cap of $450.77 billion. The Firm also creates and sells hardware, and delivers online advertising to the customers. It has 37.57 P/E ratio. The Firm operates in five divisions: Devices and Consumer Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other.