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February 19, 2006

Whither Microsoft’s stock price?

Posted by David Hunter at 12:07 PM ET.

Steve Ballmer may have famously told Microsoft shareholders last year that “the software behemoth measures its success by its products, not its share price,” but some are motivated by more mundane concerns. Daisuke Wakabayashi surveys the situation for Reuters in “Lacking identity, Microsoft stock crawls along:”

On the surface, Microsoft Corp. seems like an investor’s dream: It repurchased $7.7 billion of its own shares in the past quarter, issued the largest one-time dividend in corporate history, and generates stacks of cash.

Yet Microsoft shares have underperformed every major equity index since the start of 2002, a slump that could continue until the world’s largest software maker finds a clear investment identity as a growth stock or value play, fund managers and analysts said.

The stock is down 19 percent since the start of 2002, while the Nasdaq, the Dow Jones industrial average and S&P 500 index all recorded a rise of more than 10 percent during that period.

The problem is that Microsoft is too big to be considered a growth stock and too high priced to be considered a value stock. As a result it languishes, although it is still popular with the analysts:

Wall Street analysts are very bullish on the company’s prospects. Of 33 analysts that track the stock, 28 rate Microsoft as a “buy” or “outperform” with an average price target of $31.68, according to Reuters Estimates.

It closed at $26.70 on Friday so it has a way to go. More on the analysts’ hopes for either a growth or value play by following the link.

Filed under Executives, General Business, Investor Relations, Steve Ballmer

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