Is Microsoft Stock Still Worth Buying

Whether to buy Microsoft stock is a question investors started thinking last year as the iconic tech company got rid of its decade-long status as a perennial straggler. Microsoft Corp. (Nasdaq: MSFT) stock soared almost 40% from November 2013 to November 2014, investors were keen to jump on board. But since then, investors have had reason to wonder if it's still a good idea to buy MSFT stock.

According to Money Morning, MSFT stock price peaked at $50.05 in November 2014, but then began to slide. Microsoft stock was as low as $40.12 on April 2.

A disappointing earnings report in late January chopped 9% off the Microsoft stock price in one day. But a strong earnings report in April helped the Redmond, Wash.-based company regain that lost ground

The confusing price action has left Microsoft stock down nearly 4% on the year, slightly worse than the market averages. MSFT closed at $44.40 on Monday. And as the subsequent price forecasts show, analysts can't seem to make up their minds.

 Forbes says that Microsoft took a $7.5 billion write-down on its investment in Nokia (NYSE:NOK), which depressed earnings for the quarter and for the entire year. 

Revenue growth has been disappointing over the past two quarters (looking at a rolling 12-month tally), but this is in part due to Microsoft's transition to a subscription-based model.

For example, Office users usually bought a licensed copy in a single one-time payment. But today, Office 365 users pay a low monthly subscription fee. The outcome is that current revenues appear lower even while the quality of revenues has improved, as a subscription-based model creates regular, recurring payments. Microsoft estimates that this will ultimately bring in 80% more revenue per customer, although it will take time to fully work out.

Microsoft's decision to give Windows 10 away for free to existing Windows 7 and Windows 8 users has also taken its toll on revenue growth. While probably a smart move in the long run, as it helps to put the Windows 8 debacle in the past, it still takes a bite of out today's revenues.  PC sales will also probably stage a modest recovery from their current depressed levels as companies replace aging machines.

But the bigger news for Microsoft bulls is that, under Nadella, Microsoft continues to move beyond the Windows platform. Microsoft, along with Alphabet and Amazon(AMZN), is emerging as a leader in Cloud services. The Cloud-based Azure platform saw its revenues jump 135% last quarter. Revenues from the Intelligent Cloud division, at $5.9 billion last quarter, are quickly catching up to its Productivity and Business Processes division. This unit - which includes Microsoft Office - earned $6.3 billion last quarter.

Though Microsoft stock yields only 2.7% at current prices, it has become something of a favorite among dividend investors due to Microsoft's great track record of raising the dividend. In September, Microsoft announced a 16% dividend hike, and the company has grown its dividend at a 19% annual clip over the past three years.

Microsoft stock, regardless of its run-up, is absolutely still a buy. The risk in owning Microsoft at this point is simply the risk of a broad market sell-off. If that is something that concerns you, consider putting on a stop loss. But given that Microsoft's reinvention is still in the early stages, you definitely should not be in any hurry to sell.