Microsoft MSFT Stock Review: Is Microsoft A Digital Dinosaur?

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After a post-earnings slide, Microsoft Corporation (NASDAQ MSFT) has seen its stock price recover and gain slightly, but some critics remain unconvinced that the tech giant can justify price multiples that would have been considered cheap ten years ago.

Indigo Equity Research argues that Microsoft is still too dependent on the PC market and has 30% downside. “We consider Microsoft to be overvalued given its high PE and our weak earnings outlook, mostly due to a shift to lower margin cloud services and hardware (Nokia, Xbox & Surface),” writes N. Landell-Mills of Indigo Equity Research, who values Microsoft Corporation (NASDAQ MSFT) at $30, well below its current $45 stock price, in an August 31 report.

Microsoft Corporation (NASDAQ MSFT): Bad Reports

While Landell-Mills warns that a combination of new reporting structures, the acquisition of Nokia Corporation, and other special items makes it hard to compare the most recent earnings report with the year before, he is clearly unimpressed with Microsoft Corporation’s (NASDAQ MSFT) revenue growth.

He instead points to slowing organic revenue growth and lower margins as evidence that Microsoft is permanently cooling down. Weak reception of Surface and Windows 8 last year only reinforce his view that Microsoft won’t be able to make large enough gains in either mobile or online markets to make up for its reliance on the mature PC market.

While other analysts have given Microsoft Corporation (NASDAQ MSFT) some slack now that Nadella is at the helm (and it’s clear that Landell-Mills is no fan of former CEO Steve Ballmer), he doesn’t think that it will be able to diversify away from PCs and make multiple audiences happy at the same time.

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Microsoft Corporation (NASDAQ MSFT) Business News

Even investors who agree that Microsoft Corporation (NASDAQ MSFT) is overvalued might be surprised by how low Landell-Mills is setting his target. His base case is a 30% drop in stock price, and he thinks that a 39% drop isn’t out of the question.

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