Is the share overvalued or undervalued?

Question

share: MSFT

if the actual (estimated) return is 10%
and the expected (required) return is7.62%

HOW TO CALCULATE THE RESULT?

Answer 1

Hypothetically, if the estimated return is higher than the expected return, the stock is undervalued. However, you must be careful as there are many other factors that determine the stock's price.

How is it vs. competitors, how is the market doing? How's the sector doing? Over 50% of the stocks price direction follows the market and sector.

Personally, I would find other stocks as Microsoft is pretty big and the impact of VISTA has already been factored in to the stock price. It's not to say they won't do better than that (achew Zume), but how much better will they do?

That's why some folks call it gambling. I'd stick with other fundamentally sound companies with a higher % of their sales coming from new developments that are changing the market. AAPL for instance with the Ipod and IPhone are kicking and the new dual core processors are a good example as they've moved steadily upward this year.

Hope I was able to help a bit.

Cheers!

Answer 2

Let's see, it has a book value of some 36-40 billion but a market capitalization of just shy of 300 billion. But it generates a lot of cash and has little debt. Still there are piles of new products coming out in areas Microsoft touches, many of them touching Microsoft, as in royalties, etc.. Most importantly, people are buying the stock, the momentum is up and the graph shows a steady and respectable slope.

I wouldn't be overly excited about buying MSFT, but I would be very nervous about selling it. While I think it is over valued, as long as the market still values it I won't argue with the herd at this point.