Microsoft's Goldilocks Valuation: Not Too Expensive But Not On Sale

Microsoft Corporation (NASDAQ: MSFT)'s stock hit a new all-time high of $65.64 on Friday after the company reported a better-than-expected second-quarter earnings print while its third-quarter guidance also exceeded expectations.

Investors who are taking a fresh look at the stock on Friday are naturally wondering if the stock is now cheap or expensive. According to Richard Davis of Canaccord Genuity the answer to that question is quite simple: Microsoft's stock isn't too expensive but not on sale.

Davis commented in a research report titled "Not too expensive, but not on sale either" that Microsoft reported a "good" quarter and management's outlook is consistent with what he had expected. Beyond the headline numbers, the analyst stated he was "intrigued" with the company's aggressive entry into collaboration with Teams.

Davis also added that Microsoft's artificial intelligence firm which it recently acquired called Maluuba could help put its Cortana on par with Amazon's Alexa but "materially ahead" of Apple's Siri.

What To Do With Microsoft's Stock

Davis stated that Microsoft certainly has "good days ahead," but investors should wait for a pullback to become aggressive buyers. However, there is a problem with this thinking as the analyst acknowledged that Microsoft's stock price "could never see another 10 percent pullback for all of history."

In the off-chance that the stock market undergoes a correction and Microsoft's price falls then the analyst would consider upgrading his rating to Buy. Until then, as the title of his research report states, Microsoft's valuation "is not giving us an unfair advantage that should deliver some alpha to our money manager clients."

Shares remain Hold rated with a price target raised to $65 from a previous $60.

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