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Without a doubt, investors should brace themselves for more declines in Microsoft (MSFT) stock as the coronavirus rages on. But for investors with a longer-term view holding on to this software giant should prove to be a smart move.
Stocks on Wall Street traded higher in the premarket on Tuesday following a report that a drug made by American company Gilead Sciences will soon start trials on patients infected with the coronavirus. Last night, the Dow Jones recorded its largest daily point increase in history, jumping over 1,290 points at the closing bell. Moreover, other major stock market indexes in the United States also finished significantly higher on their way of recovering losses from the previous week. The Dow Jones increased by 0.19% at 5:58 am ET, while the Nasdaq 100 rose 0.17% at the same time. A minute later, the S&P 500 grew by 0.18%. Some stocks like the one Microsoft Corporation (NASDAQ: MSFT) also performed well.
Microsoft Doesn’t Seem to Care for Coronavirus
However, one of the stocks that showed a somewhat better incline was Microsoft. At the time of writing at 7:23 am ET, the stock was up 0.64% in premarket to $173.98.
Software company and investment advisors Simply Wall Street tried to calculate Microsoft’s Return On Capital Employed (ROCE), in the hopes of getting some insight into the business. ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. That also means a higher ROCE is better.
They calculated that Microsoft’s ROCE was 22%, meaning higher than the 9.4% average in the Software industry. Also, they calculated that Microsoft has current liabilities of $60 billion and total assets of $283 billion.
As a result, its current liabilities are equal to approximately 21% of its total assets. The fairly low level of current liabilities, says Simply Wall Street, won’t have much impact on the already great ROCE.
Any Loss Coming from Coronavirus Impact Is Short-Termed
Be it as it may, as coronavirus impacted all the markets – especially the tech sector, investors might want to think about buying some of these tech giants after the selloff. Microsoft (MSFT) stock was falling mostly affected by its announcement of it not meeting the quarterly revenue guidance. In an official statement, the company said that on January 29, as part of its second quarter of the fiscal year 2020 earnings call, the company issued quarterly revenue guidance for the More Personal Computing segment between $10.75 and $11.15 billion.
Because of closely monitoring the impact of the COVID-19 health emergency, the company announced that “for the third quarter of the fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated. All other components of our Q3 guidance remain unchanged.”
However, what happened is the same as what happened with other tech stocks. There comes a time when enough is enough and even investors get it.
The truth is, Microsoft’s warning was enough to scare already-insecure investors who have been panicking about the impact of COVID-19 epidemic will have on the global economy. When Microsoft issued its warning, it didn’t go well. Shares were immediately down as much as 11.6%. However, one thing we shouldn’t forget. Microsoft still has a market cap of $1.23 trillion even if most of the gains for the year just disappear. Before COVID-19 panic, shares of Microsoft were up 17% in 2020.
What we are saying is, that when it comes to Microsoft, all of the eventual losses caused by the novel coronavirus should be short-termed. Let’s not forget that this doesn’t impact Microsoft’s core growth driver, cloud computing.