Is the Windows “cash cow” running out of milk? That is the question to ask when you look at Microsoft’s stock, according to one ISI Group analyst.
One thing is for sure: milk or no milk, the stock has gone nowhere for the past decade (in fact it’s down 22% over the past ten years). And in the past year, the stock is down -16%, while the tech sector is up 20%. The company’s earnings report last week didn’t help any. While overall sales rose 13%, sales in the core Windows division fell 4.4%. This was to be expected: PC shipments in the first quarter were down 3.2%, according to IDC, Inc; and Windows is installed on most PCs. That consumers aren’t buying as many laptops in the face of tablet computers like the iPad isn’t a big surprise (nor is it a surprise that Apple overtook Microsoft last year to become the most valuable U.S. tech company). Beyond that, the company expects operating expenses to increase between 3 and 5% in the next fiscal year.
The markets disappointment in the report led to the steepest one-day percentage decline for the stock since July 2009. Interestingly, Market Trend Indicators signaled a sell just prior to Friday’s sell-off. The bottom line: it’s fair to say valuations on the stock look alright, and after last week’s action, shares should find a support level around $24, but I still don’t like the stock today anymore than I have for the last few years. It has gone nowhere, it’s not a growth opportunity, and indicators signal caution.