Microsoft PEG | Valurator

For informational and educational purposes only • Not investment advice.

Microsoft

Software, cloud, AI, enterprise tools

Estimated Fair Value

$574.29

Stock price: $535.07

Fair value close to stock price

This model estimates a company's fair value by relating its historical Price-to-Earnings multiples to its historical earnings growth rate.

Historical PEG Ratios

This chart shows the company's historical PEG ratio by year.

Key Valuation Metrics

Selected PEG Multiple

What is Price-to-Earnings-to-Growth (PEG)?

Price-to-Earnings-to-Growth (PEG) Valuation extends the traditional P/E approach by also considering a company's earnings growth.

The PEG ratio compares a company's Price-to-Earnings (P/E) ratio with its earnings growth rate. This helps show how the company's valuation relates to the growth in its earnings.

Historical PEG ratios show the growth-adjusted valuation multiples at which the company has traded in the past. They can be used as a reference for estimating Fair Value based on the company's current earnings and historical earnings growth.

PEG Valuation is most useful for profitable companies with positive and relatively stable earnings growth.

How the PEG Model Works

The PEG model calculates historical earnings growth and PEG ratios, selects a valuation PEG, and converts it into a Fair P/E multiple that is applied to Earnings per Share.

Calculate Historical EPS Growth

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Calculate Historical PEG

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Select the Valuation PEG

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Estimate Fair Value per Share

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Compare With Current Valuation

PEG Formula

\text{PEG Ratio} = \frac{ \text{Price-to-Earnings (P/E) Ratio} }{ \text{Historical EPS Growth (\%)} }

Key Model Assumptions

• The company must have positive Earnings per Share.
• Current EPS is based on trailing twelve-month (TTM) earnings when four consecutive quarterly periods are available; otherwise, the latest annual EPS is used.
• Historical earnings growth is calculated only from years with valid positive earnings.
• Historical PEG ratios require positive earnings growth and a valid P/E ratio.
• The historical median PEG forms the Base valuation assumption.
• Conservative and optimistic scenarios adjust the historical median PEG.
• Historical earnings growth and PEG multiples may not remain representative if the company's growth or profitability changes materially.

Step 1 — Calculate Historical EPS Growth

Historical EPS Growth = EPS (Current Year) / EPS (Previous Year) − 1

Historical EPS Growth = Median of Valid Historical EPS Growth Rates

Historical EPS Growth = 19.9%

The model calculates annual EPS growth by comparing Earnings per Share with the previous year. The median of the valid historical growth rates is then used to estimate Microsoft's Historical EPS Growth of 19.9%.

Step 2 — Calculate Historical PEG Ratios

Historical P/E = Year-End Share Price / Historical EPS

Historical PEG = Historical P/E / Historical EPS Growth (%)

Historical Median PEG = Median of the 10 most recent Valid Historical PEG Ratios

Median Historical PEG = 1.61

For each valid year, the model combines the historical P/E ratio with the corresponding EPS growth rate to calculate a PEG ratio. The median of these historical PEG ratios is used as Microsoft's historical PEG benchmark of 1.61.

Step 3 — Select the PEG Multiple

Selected PEG = Historical Median PEG × Scenario Adjustment (Base)

Selected PEG = 1.61 × 100% = 1.61

The selected scenario adjusts the historical median PEG to determine the valuation multiple used to estimate Fair Value. Under the base scenario, the model uses a PEG multiple of 1.61.

Step 4 — Estimate Fair Value per Share

Fair P/E = Selected PEG × Historical EPS Growth (%)

Fair P/E = 1.61 × 19.9% = 31.98x

Fair Value per Share = EPS × Fair P/E

Fair Value per Share = $17.96 × 31.98x = $574.29

The selected PEG is combined with historical EPS growth to estimate a Fair P/E multiple of 31.98x. This multiple is then applied to Microsoft's Earnings per Share (EPS) of $17.96 to estimate a Fair Value per Share of $574.29.

Step 5 — Compare With the Current Market Valuation

Current P/E = Current Price / EPS

Current P/E = $535.07 / $17.96 = 29.79x

Current PEG = Current P/E / Historical EPS Growth (%)

Current PEG = 29.79x / 19.9% = 1.50

Valuation Gap = Fair Value per Share / Current Price − 1

Valuation Gap = $574.29 / $535.07 − 1 = 7.3%

Current PEG shows Microsoft's current valuation relative to its historical earnings growth. The company currently trades at a PEG ratio of 1.50, compared with a historical median of 1.61.

The Valuation Gap compares the estimated Fair Value with the current stock price of $535.07. Under the current assumptions, the Valuation Gap is 7.3%.