A key resistance level has formed in the chart of Microsoft Corporation (MSFT). If this level is broken, a breakout could occur.
MSFT dominates the PC software market with an 80% market share in operating systems. The company’s Office 365 application suite is considered the standard for many businesses. MSFT is also one of the top cloud providers in the world.
The company is benefiting from strong demand for its Azure solution as well as user growth for its video conferencing product, Microsoft Teams. The stay-at-home trend from the pandemic is driving this growth. MSFT is also seeing strong demand for its new Xbox console and subscription-based Xbox Game Press.
MSFT has a healthy balance sheet with $138 billion in cash on hand, compared with $65 billion in long-term debt. The company’s short-term liquidity is also strong with a current ratio of 2.5. MSFT has strong profitability figures with a return on equity of 38.5% and an ROIC of 24.6%.
In terms of growth, both sales and earnings are up over 13% in the past year. Both are expected to grow 10% next year. Its stock has a trailing P/E of 35.90 and a forward P/E of 33. While not undervalued, both figures aren’t bad for a technology company.
The stock has positive near-term momentum and bullish mid and long-term performance. This has led to a “Strong Buy” rating in our POWR Ratings system and a grade of “A” for Trade Grade and Buy & Hold Grade.
Take a look at the 1-year chart of MSFT below with my added notations:
During the past few months, MSFT has formed a key level of resistance at the $225 (red) mark. The stock has tested that level multiple times after its spring to summer rally and now seems to be pulling back down from it again. A solid close above $225 should lead to higher prices for MSFT.
A long trade could be entered on a breakthrough of that level, with a protective sop order placed underneath.
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MSFT shares were trading at $221.51 per share on Thursday morning, up $0.49 (+0.22%). Year-to-date, MSFT has gained 41.95%, versus a 16.56% rise in the benchmark S&P 500 index during the same period.
About the Author: christian
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...
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