Disclaimer - Nothing in this post is financial advise
While inflation is flying high and most of Wallstreet is looking for a recession, investors are seeking recession-proof stocks these days.
To evaluate if a stock could live through a recession, investors should look at the demand for a company's products, expected growth, and sales. The history of a company could foreshadow how management navigates a company through a recession.
Let us see if tech giant Microsoft Corporation(Ticker: MSFT) can live through a recession.
Microsoft - A recession-proof stock?
Founded in 1975, Microsoft has already lived through several market crashes and global crises.
Shares lost about 50% of their value during the financial crisis in 2008, which they regained in value over the next 4 years.
In total, since the crash in 2008, the stock returned a whopping 1545%, which showcases the incredible strength of Microsoft and its management in recent decades.
A look into the financials
As of writing, Microsoft has a 1.979T Market Cap with a current share price of $265.56, which is a decline in the price of 24,05% from its 52 Week High.
Analyst's price targets range from $251.76(-5,20%) to $500(+88.28%), with a 1y Target Est. of $357.32, which would mean an increase in the share price of 34.55%, according to yahoo finance.
Sitting in the middle of the tech giants
Microsofts current P/E of 27.79 combined with the expected growth of 15.8 leads to a PEG ratio of 1.75. This means Microsoft is sitting right in the middle of other tech giants compared with Apple Inc., which has a PEG ratio of 2.42, and Alphabet Inc.'s PEG ratio of 0.77.
When assuming expected growth, one should consider that most analysts' forecasts have already priced in high inflation and a potential recession for the coming year.
The company is also undergoing a merger with Activision Blizzard, Inc. (Ticker: ATVI) in a $69 billion deal.
While facing an economic slowdown, the merger with Activision could turn out to be a cash cow since the demand for games keeps rising year over year. This could ultimately lead to enhanced growth numbers, which again could boost Microsoft's share price.
Find out what the PEG Ratio says about a company and how to measure it:
Demand for products declines?
Sales grew 13.65% in 2020 and 17.53% in 2021. For the full year, 2022 sales are estimated to increase by about 18.40%.
But the future outlook isn't looking that good. Analysts expect a growth in sales of "only" 14.00% in 2023, which could forecast a decline in demand and growth for Microsoft in the coming years.
Conclusion
Microsoft is one of the world's biggest tech companies with an incredible track record. The company continues to generate more cash every year, and its current weakness in share price could offer a buying opportunity that we haven't seen in recent months.
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