How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 473.99

+0.4%

Nov 24 3:59 PM EST

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To: vinod Khurana who wrote (4565)	12/31/1997 1:48:00 PM
From: Ed Schultz	Read Replies (3) of 74651

There is not a chance in heck that Microsoft is going down to $100 in the next 5 months (or 5 years). The reason is EXTREMELY SIMPLE! It's called stock options. Under $120 the stock becomes cheap and Microsoft will start buying it back. Look at it this way, Microsoft has roughly $10B in cash. This money is at best earning 7-8%. At $120 and an anticipated growth rate of 15-20%, Microsoft is far better off purchasing its own shares. Second, regardless of the price, Microsoft has an obligation from time to time to payoff all the stock options it has granted and hence needs to buy back shares. Given that we have been at $130 for so long, $120 looks darn cheap. Look at it another way. Let's assume they use ALL of their cash to buy back options at $120. They could then roughly buy 90M shares. This is more than enough to cover all option grants for the next 4 years. Furthermore, Microsoft is currently earning about $800M-$1B per quarter. Assuming a growth rate of 15%, this number could double in 4 years. This would then give them around $20B in cash with NO obligations at the end of 4 years! I can tell from your post that you are shorting the stock but one must look at things realistically and not hopefully. Look for Microsoft to stay between $120-$140 for the next 6 months before it takes off.

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