Microsoft – Quietly flying below the Radar. (Good Model Price Math!)
February 16, 2012
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Here is the model price chart on Microsoft (MSFT).
Microsoft with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of MSFT subsequent to this post will be maintained on Facebook, here.
Notice how the stock price follows along EBV+5. Again these EBV lines are derived from the balance sheet. Forgetting model price for a moment, we can calculate EBV+5 one year out to February, 2013 by adding to Microsoft’s balance sheet consensus earnings forecast and reducing dividends paid on a pro rata calendar basis. We calculate EBV+5, one year out to be $36.58. From the close posted on the chart of $30.05, this implies a gain of 21.7%. Plus add in the dividend of 2.7%, and an investor has a low risk expectation of a 24.4% gain over the year.
We calculate model price to be $40.49, which is our definition of fair value. That implies an almost 35% potential gain above the close on the chart of $30.05. Closing this gap in value can happen anytime.
As stated in our “initial post” we do not recommend specific stocks to our readers, however we can point to the power of the model price math and how it favors investors who currently have a position and/or contemplating an investment.