It's one of the more nerve-racking decisions investors must sometimes make. Should you buy a stock immediately before the company reports earnings, or should you wait? Making the wrong call can prove costly, and that cost is often paid in the form of missed gains.
Software giant Microsoft (MSFT 2.02%) is forcing such a decision on investors right now. The company is scheduled to post its fiscal third-quarter numbers after this Thursday's closing bell rings. Although the stock has proven incredibly rewarding since early last year, its pronounced weakness over the course of the past few days is a serious red flag. Are investors filing out of their Microsoft shares in anticipation of disappointing Q3 numbers? If so, it could be a hint that they're already planning on seeing the proverbial glass as half-empty rather than half-full. Or maybe this recent sell-off is a mistake that will be corrected by a bullish catalyst waiting within the third-quarter report?
Obviously nobody owns a crystal ball. From a risk-management perspective, though, the smart move right now is not buying Microsoft stock before Thursday's release of its Q3 results. Here's why.
Timing isn't actually everything, but...
First things first.
A year from now it won't really matter if you bought Microsoft before or after its upcoming earnings report. Whether it rises or falls on Friday, Microsoft stock isn't going to make any move that day that meaningfully compares to the movement you're likely to see during the five-year (at a minimum) timeframe you should have in mind. That's just the nature of the market. The short-term ebb and flow is unpredictable because it's often irrational. In the long run, though, you can count on a stock reflecting its underlying company's fiscal results.
If it just doesn't feel right to not at least try to optimize your trades' entries, though, the lower-risk, higher-odds move here is holding off on stepping into Microsoft stock.
There are a couple of reasons this is the case, the first of which is just a reminder of what happened the last time the company reported quarterly numbers. Although Microsoft topped its second-quarter revenue and earnings estimates, disappointing guidance dragged the stock slightly lower.
Admittedly, that was then and this is now. But history has a funny way of repeating itself, even if only briefly.
And the other reason to avoid buying Microsoft shares at least until Friday? The sell-off currently underway. While market-wide weakness is certainly weighing on the stock, this exaggerated selling suggests investors are making a conscious effort to not be holding the stock when earnings are released.
Maybe these investors know something. Maybe they recognize that, priced at nearly 30 times next year's projected earnings, this stock is simply priced too richly now. Whatever the case, take the subtle hint the stock's recent action is trying to give you.
Microsoft stock is a long-term buy no matter what happens
This is of course no guarantee that Microsoft stock will fall following Thursday's earnings report. Again, nobody owns a crystal ball. Shares may well rally on Friday, fueled by growth and hope on the cloud computing front, and on the AI front in particular. The chief reason to keep your powder dry in the meantime is mostly just risk-mitigation.
But even if Microsoft shares stumble on Friday (and into next week), recognize that the dip is still a long-term buying opportunity. And yes, you should act on that opportunity.
This is Microsoft. It's not just a big technology company that's been around forever. It's arguably the centerpiece of the most powerful technology we use at work, school, and even at home. That's the personal computer. Microsoft's Windows is the operating system installed on more than 70% of the world's computers, according to data from GlobalStats' Statcounter -- market share that's been growing again since the middle of last year. Being the most-used PC platform also means Microsoft's other software and apps are a top-of-mind choice for anyone looking to get more out of their system.
MSFT Revenue (Quarterly) data by YCharts
Then there's cloud computing. While Amazon remains the market share leader, numbers from Synergy Research Group indicate that Microsoft's cloud computing business is easily the world's fastest-growing one.
Continued development of its artificial intelligence offerings will only accelerate this growth. The company's now manufacturing PCs built around its personal artificial intelligence assistant (called Copilot), for instance. Better still, a handful of Microsoft's upcoming laptops will come with onboard neural processing hardware capable of handling AI duties that are normally done in the cloud. As Wedbush analyst Daniel Ives put it last month, "We strongly view this as Microsoft's 'iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years." Ives is of course pointing to the way the invention of the iPhone helped make Apple one of the biggest and most successful companies of all time.
And for the record, the entire analyst community anticipates double-digit revenue and earnings growth from Microsoft for the next several years.
Don't miss the bigger picture
Still not convinced either way? That's ok. In fact, that's arguably a good thing. It's your brain's way of telling you you're probably worrying too much about the wrong details, and not worrying enough about the things that really matter. As was noted already, in the grand scheme of things it's probably not going to matter much if you buy Microsoft stock before or after Thursday evening's report. It's a great company with incredible growth prospects. That's not going to change simply because of one quarter's numbers.
If you feel compelled to at least try to squeeze out a few extra bucks' worth of profits, though, just a few more days. It may end up not helping much, but it certainly won't hurt.
