Stock of the Day

October 31, 2022

Microsoft (MSFT)

$408.25
-$7.88 (-1.9%)
Market Cap: $3.09T

About Microsoft

Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services. This segment also provides LinkedIn; and dynamics business solutions, including Dynamics 365, a set of intelligent, cloud-based applications across ERP, CRM, power apps, and power automate; and on-premises ERP and CRM applications. The Intelligent Cloud segment offers server products and cloud services, such as azure and other cloud services; SQL and windows server, visual studio, system center, and related client access licenses, as well as nuance and GitHub; and enterprise services including enterprise support services, industry solutions, and nuance professional services. The More Personal Computing segment offers Windows, including windows OEM licensing and other non-volume licensing of the Windows operating system; Windows commercial comprising volume licensing of the Windows operating system, windows cloud services, and other Windows commercial offerings; patent licensing; and windows Internet of Things; and devices, such as surface, HoloLens, and PC accessories. Additionally, this segment provides gaming, which includes Xbox hardware and content, and first- and third-party content; Xbox game pass and other subscriptions, cloud gaming, advertising, third-party disc royalties, and other cloud services; and search and news advertising, which includes Bing, Microsoft News and Edge, and third-party affiliates. The company sells its products through OEMs, distributors, and resellers; and directly through digital marketplaces, online, and retail stores. The company was founded in 1975 and is headquartered in Redmond, Washington.

Microsoft Bull Case

Here are some ways that investors could benefit from investing in Microsoft:

  • Strong Earnings Performance: Microsoft reported earnings per share of $3.23, exceeding expectations, which indicates robust financial health and operational efficiency.
  • Consistent Dividend Payments: The company announced a quarterly dividend of $0.83, translating to an annualized dividend of $3.32, providing a steady income stream for investors.
  • High Market Capitalization: With a market cap of $3.04 trillion, Microsoft is one of the largest companies globally, suggesting stability and a strong market presence.
  • Positive Analyst Ratings: The consensus rating for Microsoft is "Moderate Buy," with a target price of $510.96, indicating strong confidence from analysts in the company's future performance.
  • Current Stock Price: As of now, Microsoft’s stock is trading around $428.76, which is close to its 50-day moving average, suggesting potential for growth as it approaches its one-year high of $468.35.

Microsoft Bear Case

Investors should be bearish about investing in Microsoft for these reasons:

  • High Price-to-Earnings Ratio: With a PE ratio of 32.88, Microsoft’s stock may be considered overvalued compared to its earnings, which could deter value-focused investors.
  • Market Volatility: The stock has a beta of 0.90, indicating it is less volatile than the market, but any significant market downturn could still impact its stock price negatively.
  • Debt Levels: Although the debt-to-equity ratio is low at 0.13, any increase in debt could raise concerns about financial stability, especially in uncertain economic conditions.
  • Potential for Slower Growth: Analysts forecast earnings per share of 13.07 for the current year, which may indicate a slowdown in growth compared to previous periods.
  • Recent Price Target Reductions: Some analysts have lowered their price targets for Microsoft, which could signal a lack of confidence in short-term performance.

As Mega Caps Get Crushed, This Mid Cap Tech Stock Is Crushing It

Written By MarketBeat Staff on 10/31/2022

As Mega Caps Get Crushed, This Mid Cap Tech Stock Is Crushing It

No one told Impinj, Inc. (NASDAQ: PI) that 2022 is a down year for technology stocks

Shares of the emerging digital tech innovator are up more than 30% so far — and by its own standards, that’s a relatively ‘weak’ performance. Over the last three calendar years, Imping has surged 78%, 62% and 112%. 

Meanwhile, a witch's brew of macro headwinds and disappointing Q3 earnings reports has mega cap tech companies reeling. Alphabet, Amazon and Microsoft have each experienced spooky October drops and are down 30% or more year-to-date.

While the big names grab the headlines, Impinj continues to quietly go about its business of connecting everyday items to the digital world. Its technology is a game changer across many industries and yet it continues to fly under the radar. That may soon change.

What Does Impinj Do?

Impinj is the bridge between the physical and digital worlds. It makes radio frequency identification chips, or RFID chips, that get placed on billions of consumer products and industrial items. This allows for real-time wireless communication between ‘things’ and online systems.

The ‘Internet-of-Things’ (IoT) technology has widespread applications and offers tremendous value to customers. Businesses like clothing, sneaker, and auto parts retailers can instantly analyze and optimize inventory levels. Logistics companies can better track shipments. Slap RFID tags on suitcases and airports will (hopefully) lose less of our luggage. 

It can also be used as an authentication tool to identify counterfeit goods in the supply chain. Loss prevention and self-checkout are additional applications. 

Sound like niche technology with limited revenue potential? Nope. Blue-chip customers include Walmart, Target, Nike, Levi’s, McDonald’s and several others.

Impinj’s cloud-based Radio Identification (‘RAIN’) platform connects more than 60 billion items. It provides timely, accurate data that gives businesses a competitive edge. The company participates in a unique but powerful part of an IoT market that is in the early stages of an explosive growth trajectory. 

Like many other semiconductor-dependent markets, the global chip shortage has slowed IoT’s pandemic recovery. As supply chain pressures ease, however, IOT Analytics projects that the number of connected IoT devices will roughly double from 2022 to 2025.  

Does Impinj Have Good Fundamentals?

From 2015 to 2021, Impinj grew its sales at 16% annual rate — and that includes the inevitable Covid downturn in 2020. Even with the current macro headwinds, year-to-date sales growth has doubled to 32%. 

Last week it turned in another impressive quarterly performance. Both core offerings — endpoints and readers — posted record revenue. Total revenue jumped 51% year-over-year and the bottom line swung from a $0.04 per share loss to adjusted EPS of $0.34. 

Through the first nine months of the year, Impinj earnings have increased nearly sevenfold compared to 2021. So needless to say, the growth metrics are phenomenal.

Another mark of strong fundamentals is improving profitability. In sharp contrast to escalating expenses at Meta Platforms and other tech giants, Impinj’s margins are expanding. In Q3, the gross margin swelled to 54.8% from 50.9% in the prior year period. 

Better yet, the company ended the period with a record order backlog. Co-founder and CEO Chris Diorio said he expects “demand to remain strong well into 2023.” Rising demand combined with improving product availability sounds like the making of another stellar year.

The balance sheet is in good shape as well. As of September 30th, Impinj had approximately $182 million in cash and $280 million in long-term debt. With none of the long-term debt coming due within the next 12 months, liquidity ratios are healthy — which should enable the pursuit of growth projects.

Is There More Upside to Impinj Stock?

After rebounding 8% in 2021, the IoT market is expected to grow 18% this year. As chip constraints improve and the buildout of 5G and other wireless networks ramp, this growth is projected to accelerate. This means demand for Impinj products and services should only gain momentum. The company estimates that less than 0.3% of the world’s connectable items are connected, including consumables and other everyday objects.

Only a half dozen sell-side research firms actively cover Impinj, although more are likely to follow. Even after an 11x return off the March 2020 low, the group remains unanimously bullish. In the wake of the Q3 release, all reiterated their buy ratings and there were price target hikes aplenty. 

With that said, the stock has already run up towards the high end of the Street’s price target range of $120, so the near-term upside appears limited. On the other hand, analysts have been playing catch-up with this name all along — so further target increases wouldn’t be surprising.

If Impinj can power through an environment of supply chain disruption and cautious tech spending, imagine what it can do when economic conditions normalize. Don’t let the stock chart fool you. This IoT pioneer is only getting started.

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