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Microsoft Shares Back In An Upward Trajectory: A Technical Breakdown

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Microsoft Shares Back In An Upward Trajectory: A Technical Breakdown
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Microsoft Corporation (NASDAQ: MSFT) shares led the market's rally off the October lows by rallying nearly 20 percent. Since peaking on November 14, however, shares have pulled back in what could be a normal pullback in a bull trend.

Does the company have the fundamental goods to propel it up to new 52-week highs?

What The Bulls See

  • Still attractive profit margins north of 23 percent.
  • Massive levered free cash flow of $23.41 billion annually.
  • A nearly perfect balance sheet: $88.54 billion in cash versus $23 billion in debt, debt-to-equity of 26.53 percent and a current ratio of 2.52.
  • A Treasury-beating dividend rate of 2.5 percent with a 44 percent payout ratio, indicating a little room for dividend growth in the future.
  • Attractive valuations for a mega-cap: A P/E of around 16 versus estimated EPS growth of 17.6 percent for 2015 and a price-to-sales ratio of 4.40.

Related Link: Jim Cramer: Microsoft Is Very Cheap And Is A 'Really Good' Stock

What The Bears See

  • Rich valuation metrics: The market capitalization of $399 billion trumps the enterprise value of $334 billion, the price-to-book is 4.47 and the 16 P/E doesn't seem so cheap when compared to 6 percent revenue growth.

The Technical Take

Technicians feel that Microsoft shares may have completed a corrective move down at around $47.28 in the last two weeks. Since then, the stock has been trying to work higher once again. If their read is correct, then Microsoft should make a run up to the $50.65 projected wave "v" resistance on the chart. Any close below $47.28 will put this bullish technical set-up in jeopardy of not coming to fruition, however.

Overall…

Potential long-side players in Microsoft will be looking to enter the stock on any pullback to around the $47.81 level with stops in place on any close below 47.28 and a target of $50.65. Short-sellers may be trying their luck with Microsoft at or near the previous high at $50.05. They will be using any close above $50.05 as a stop loss.

Stock chart: 
Stock chart

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