What Should We Expect From Microsoft Corporation's (NASDAQ:MSFT) Earnings In The Years Ahead?

The latest earnings release Microsoft Corporation’s (NASDAQ:MSFT) announced in June 2018 suggested that the business faced a substantial headwind with earnings declining by -21.85%. Below, I’ve presented key growth figures on how market analysts perceive Microsoft’s earnings growth outlook over the next couple of years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

See our latest analysis for Microsoft

Analysts’ outlook for the coming year seems buoyant, with earnings climbing by a significant 98.19%. This strong growth in earnings is expected to continue, bringing the bottom line up to US$43.81b by 2021.

NasdaqGS:MSFT Future Profit July 29th 18

Although it is useful to understand the rate of growth year by year relative to today’s value, it may be more valuable analyzing the rate at which the earnings are rising or falling every year, on average. The benefit of this approach is that it ignores near term flucuations and accounts for the overarching direction of Microsoft’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I’ve inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 20.39%. This means that, we can assume Microsoft will grow its earnings by 20.39% every year for the next couple of years.

Next Steps:

For Microsoft, I’ve put together three important factors you should look at:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is MSFT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MSFT is currently mispriced by the market.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MSFT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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