Microsoft's Price-to-Earnings Ratio May Be Misleading
Microsoft's stock price-to-earnings ratio is about 26.7 times adjusted earnings, but this number may be misleading for investors.
The trailing multiple only accounts for normalized net income with stock-based compensation added back, which doesn't align with analysts' forecasted earnings.
Azur and other cloud services grew revenue by 43% in fiscal Q4 2026, while Microsoft 365 Copilot has reached 30 million paid seats, exceeding expectations.
However, management has guided Windows OEM and Devices revenue down by a high-teens percentage for fiscal 2027 due to a weaker PC market and higher component prices.
To justify the current price, analysts expect revenue growth of about 18.6% annually until fiscal 2028, which is slightly above Microsoft's recent performance.
The margin assumption is crucial, as consensus forecasts no expansion between fiscal 2027 and 2028, with operating margins expected to hold at around 46.8%.