Microsoft (NASDAQ: MSFT), with a market value recently topping $1.5 trillion and annual revenue topping $143 billion, was once an aging tech giant that had grown complacent and overly dependent on its Windows and Office software cash cows.
But under CEO Satya Nadella, who took the helm in 2014, Microsoft evolved its core software products into cloud-based subscription services, and became the world’s second-largest cloud infrastructure platform provider after Amazon. The Office 365 Commercial segment saw revenue grow 19% year over year in the most recent quarter, while Microsoft’s cloud service Azure posted revenue gains of 47%. For context, the company’s overall revenue rose 13%.
Microsoft’s Surface and Xbox businesses are also growing briskly – delivering revenue gains of 28% and 65%, respectively, in the last quarter. The company has been abandoning its dying smartphone business: Instead of producing more low-margin phones, Microsoft launched iOS and Android versions of its popular apps, which kept it relevant in the mobile market even without a leading mobile OS.
With a forward-looking price-to-earnings (P/E) ratio recently near 32, Microsoft’s stock isn’t cheap. But though the stock has soared more than 340% over the past five years, Microsoft is likely to keep growing in the years ahead, rewarding long-term investors. It also offers a small but growing dividend. (The Motley Fool owns shares of Microsoft and has recommended Microsoft stock and options.)
Ask the Fool
Q: Shares of Amazon.com seem to cost more than $3,000 apiece. Is that right? It seems weirdly high. – R.Y., Bend, Oregon
A: It’s true. The same would be true of many other stocks, if they’d never split their shares. Amazon has split its shares three times, in 1998 and 1999, after going public in 1997 – first 2-for-1, then 3-for-1, then 2-for-1 again. But it hasn’t split them since then, though the shares have continued to rise.
If you bought 100 shares of Amazon at the outset, you’d have ended up with 200, then 600, then 1,200 shares after the splits, with the stock price being reduced by 50%, 67% and 50%, in turn. That means a single share of Amazon would have traded for over $36,000 at this writing, had there been no splits. And by the way – a mere $500 invested in Amazon when it debuted would leave you with a stake worth about $1 million by mid-August of this year.
Stock splits can make shares of stocks more affordable to the masses. Even a $3,200 price tag might not exclude you, though – if you had $3,200 to invest, you could buy a single share.
Q: Where can I learn more about real estate investment trusts, or REITs, and investing in real estate? – H.W., Evanston, Illinois
A: Try reading “Real Estate Investing for Dummies,” by Eric Tyson and Robert S. Griswold (For Dummies, $25). Or visit REIT.com or our sister website, Millionacres.com. Before sinking many dollars into actual properties, talk to and learn from experienced real estate investors. You might find you prefer REITs, as their shares trade like stocks and you can invest (and risk) very little.
My dumbest investment
My dumbest investment was buying two shares of Beyond Meat for $80 each. When the price shot up near $240 per share, I should have sold, because I knew that the shares weren’t worth that much at that point. Instead of locking in my gains, I held on, and now the value has fallen to where I started. I’ve learned more about the dangers and rewards of IPOs. – M.K., online
The Fool responds: Beyond Meat, which makes plant-based meatlike products, debuted on the stock market in early May 2019, via its initial public offering, or IPO. It’s a great example of how volatile IPOs can be: Beyond Meat shares popped 163% on their first trading day – initially priced at $25, opening at $46 due to demand and closing the day at $65.75. (Many IPOs end their first day in the red.)
Within a few months, shares approached $240, but less than a year later they had fallen below $60. Beyond Meat shares have recently been near $125; some see that as too rich a price for this not-yet-profitable company, while others see a future promising enough to warrant it.
IPOs have burned many investors. You might have considered selling part of your position when the shares seemed overpriced. Generally, though, it’s best to steer clear of IPOs and give them a few months to a year to settle down – no matter how promising the companies may seem.
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