How I Accidentally Made $22,003 in 5 Days (From Just 1 Stock)

My investment in Microsoft stock made $22,03 in a week. Just five days ago, Microsoft was trading at a share price of $390.54. Now it's up 26.19% to $49,281. So now my same exact 215.15 shares of MSFT stock is valued $22,000 more. And I have to be honest with you, I was not planning for this large of a gain in the span of 5 days. Last week, Microsoft reported earnings and the stock boomed up 15 12% in one day and then continued gaining throughout the week. But here's the reality. What happens in the span of just 5 days or especially immediately after an earnings report is highly unpredictable. And as a long-term investor, you really shouldn't even be getting that excited about it. If we just look at Microsoft stock year to date, we already had multiple earnings reports throughout and the reactions have been all over the place. Now, this is a long-term position I've been building up and towards the end of July, right before its earnings report, I started buying a little bit of Microsoft stock because it had this big sell-off and I was feeling pretty confident in that they would have a very good earnings report and they did. Yet, the stock sold off 8 1/2% in the following week and it continued to go down in the months to follow. And this is where we get into a little bit of a psychological lesson for investing long-term. If you've done your homework on the company and you have a rep idea of what it should be valued at and you think the company's doing well and they continue to sell off at a price you think is attractive, you should view a market sell-off like that as an opportunity to buy more. And that's what I did throughout 2026. While Microsoft stock was down, I was building my position. I could go back and look at my exact cost per share throughout the year, but it's probably around the $390 mark for what I purchased in 2026. And the main reason why I'm making this video is not to talk about the fact that it's gone up 26% a week. It's to talk about the fact that as a long-term investor, you should not be so elated and excited about this happening so quickly. Now, yes, it's nice to see, especially after a year of poor price performance, but Microsoft stock was actually more attractive to buy at these lower prices. you could have bought into the company at a lower valuation. But ironically, now that the price has gone up 26%, a lot of the market starts piling into the company. They hated the stock at 380, but they love it at 492. So today, I'm going to discuss what actually happened in those 5 days that got the market so excited and whether Microsoft stock after going up 26% in a week is actually still undervalued. And I think you can definitely make the argument. So, if you stick around to the end, I'll explain exactly what made analysts raise their earnings and revenue estimates for the coming years, and why we just saw this massive wave of price target raises. And finally, I'll give my thoughts on what I'm doing with my Microsoft stock position. With that said, let's roll the intro and get into today's video. [music] The following reflects the opinions of a man who spends far too much time thinking about stocks. Please do your own research before making any investment decisions. Nothing in this video is personal financial advice. continue at your own risk. >> My name is Zach. This is Dividend Data. You should leave a like and subscribe to the channel if you enjoy the video. Now, if you want to follow along and look at the same exact charts that I do, it's all available at dividendata.com. You can open the link straight to the Microsoft stock page link in the description and pin comment of the video or scan the QR code in the corner. So, let's get right into it. So, year to date, Microsoft stock is still only up 4.2%. And over the past year, Microsoft stock is still down 6.62%. 62%. So, if you've been a long-term investor in Microsoft, I get why a lot of you are very happy about this 26% increase. And I'm not going to pretend I didn't have a little bit of that as well. But remember, psychologically, the stock was more attractive to buy at these lower prices. Over the past 5 years, Microsoft stock is up 70%. That's an 11.23% compound annual growth rate. And from reinvested dividends, that's up to 77.3% 12.15% keger. And if we look over the past 10 years, Microsoft has a total return of 861%. That's a 25.41% compound annual growth rate. So the past 5 years, Microsoft stock has been underperforming what it did over the past decade. But a lot of the fundamentals, aside from one, which I've talked about in a lot of my Microsoft stock videos, a lot of the core fundamentals are doing just as well as they were in the prior decade. And the company has a lot of big growth initiatives underway. So, you can see revenue over the trailing 12 months for Microsoft is 331 billion. That's growing 14.74% annually in that 10-year time period. And you can see the 5-year keg is 14.26%. Analysts are currently expecting continued revenue growth going forward. And they're actually expecting it to accelerate 18%, 19%, 19%, 17 1.5%, and 32%. And I'll explain why later. If we look at the earnings for Microsoft stock, you can see they just had their all-time high in adjusted earnings per share at $4.74 in the latest quarter. And over the past 10 years, Microsoft's earnings per share are up 523%. That's a 20.6% compound annual growth rate. Microsoft just finished their fiscal 2026. So next year's earnings would be 2027. Currently, analysts are projecting $1963 in earnings per share or Microsoft in 2027. That would be 15% growth year-over-year, giving the stock a forward P ratio of 25.1. And if we look at this tool I have called the PE analyzer, right now we have it toggled to the forward-looking P ratio. And based on the earnings per share, this is still one of the cheaper points you could have bought Microsoft stock based on its P ratio. You can see it's in the 14th percentile right now. And the median P ratio over the past 5 years is 30.18. And over the past 10 years, the P ratio right now is in the 35th percentile. So, not at the cheapest like it was just a couple weeks ago. Microsoft was actually trading at its cheapest valuation in 10 years. And that's despite the company expecting to accelerate their earnings per share growth. Even all of the analysts have expectations of higher growth going forward. And I'll come back to that and explain why. But first, I have to talk about what I think is the most important metric when analyzing Microsoft stock and frankly one of the most important metrics impacting the entire AI investment case in the stock market. and that is operating cash flow. Specifically, we're talking about Microsoft here. Over the trailing 12 months, they've generated 182.94 billion. That is up 34.35% year-over-year. If we look at the 5-year compound annual growth rate of Microsoft's operating cash flow, that was 18.43%. So, Microsoft is accelerating. You can see in the latest quarter, they generated $55.44 billion of operating cash flow. That was up 30% year-over-year. And you can really start to see that acceleration as we zoom out. So what is it at Microsoft that is driving up their operating cash flow? And the answer is their cloud business, specifically Microsoft Azure. Their intelligent cloud segment grew 32% year-over-year. And Microsoft Azure grew 43% year-over-year. And they announced that Azure passed its first year of 100 billion of revenue. And the intelligent cloud segment of Microsoft is now the largest business segment and it's growing the fastest at 32% year-over-year. And this is the thing that I like to see as an investor when a company's largest business segment is its fastest growing business segment. And where's all this growth coming from? It's from AI data centers and AI inference demand. You saw it at Google Cloud, which grew 80% year-over-year. You saw it at Amazon Web Services, which is accelerating. I can't remember the exact number. It was slightly less than Azure. The other big number from this report is commercial remaining performance obligations RPOS that grew 84% year-over-year to $678 billion. So this is commitments from customers that if they can build this compute demand, all these AI data centers, they have committed contracts. And one number that the market liked is that the growth from $627 billion to $678 billion was all not frontier model companies. So the market did like the diversification there. And this is a very similar story happening at all the hyperscalers. It's happening at Amazon. It's happening at a Google cloud. The demand is off the charts and these companies are trying to build to serve that capacity. Now, if you've been following the channel, I've been talking about this accelerating operating cash flow. I've been talking about the cloud growth that is coming for these hyperscalers. And frankly, it's been pretty obvious for a couple quarters. Yet, for some reason, the market decided to finally pump after this quarter. When back in January, they reported great growth and RPOs. Yet, the stock sold off and it didn't rally in the April earnings report either. And I've gone over this many times, but the big red flag that the market worries about with these big tech companies is the fact that they're spending so much in AI capex and they've been concerned in the past about the return on investment. You can see over the trailing 12 months, Microsoft spent $15 billion, and this is going to increase next year. It's increasing at Google. It's increasing at Amazon. So, in the case of Microsoft, their free cash flow is lower than their operating cash flow. And despite all of the operating cash flow growth over the past five years, Microsoft's free cash flow is only up 10.8%. So if you're analyzing the company shortterm, this is the one thing you got to worry about. And then also the return on investment question. Now, Microsoft historically has had pretty great return on invested capital, 20.6% in the past year. And part of the reason why the stock went up this quarter is because analysts liked the commentary from Satia Nadella, the CEO, on return on invested capital. He spent a big part of the call talking about it and as of right now it seems like the market's starting to buy into that narrative. So while I think Microsoft over the long term they're going to see a lot of growth in their fundamentals and the fair value of the company will continue to increase. I would not start yoloing into Microsoft and the other hyperscalers. The market can shift like that and valuation still matters when you're buying these companies. So let's dive right into that. Is Microsoft stock undervalued right now? So right here we're going to look at adjusted earnings per share over the trailing 12 months for Microsoft stock. This is on the value graph tool and it shows you the median P multiple over the past 5 years. This is the trailing 12 months P multiple. The current one is 28.52 and the median multiple over the past 5 years is 33.96. So even after going up, Microsoft is still 16% below the implied fair value if Microsoft traded at a 33.96 P ratio. You can see that would imply a fair value of $586 for Microsoft stock, which would imply 19.1% upside from here. But here's the kicker. Over the long run, Microsoft's fair value is growing because their earnings per share is growing. And if we look at Microsoft based on its operating cash flow over the trailing 12 months, it's currently trading at a 20.01 price to operating cash flow ratio. And over the past 5 years, the median is 26.08. So by this metric, Microsoft stock looks even cheaper, trading 23% below implied fair value. And if the stock goes back up to that 26 price to operating cash flow ratio, it would imply a fair value of $642, which would be 30.3% upside from here. And again, I mentioned earlier the operating cash flow is accelerating 34% growth year-over-year. But the one metric where Microsoft stock looks expensive is free cash flow. And ultimately on a long time horizon, free cash flow is the most important metric because that's the money left over that the company can use to reward shareholders. They can pay dividends. It can buy back stock with it or they can just build up their balance sheet. And in a discount cash flow model, free cash flow is the golden ticket. It is the number one metric. And you can see that Microsoft stock actually looks expensive based on the 5-year price to free cash flow multiple. It's currently 54.65 65 because Microsoft is investing all of this capex to grow their overall business, but it's not represented right now in their free cash flow. It actually looks like a negative right now. Over the past 5 years, Microsoft's traded at a median multiple of 41.89. And if the stock goes back down to that median price to free cash flow multiple, that would imply a fair value of $377, which would imply 23.4% downside from here. And that multiple over the span of 10 years is even lower. 34.04. That would imply 37.7% downside from here. If they go back to the 10-year median multiple. So when I look at Microsoft stock, I feel confident in where the company will be 2 3 4 5 years from now. They will be much larger, earning much more in earnings per share, operating cash flow, and possibly free cash flow. Unless Capex just continues scaling and scaling and scaling. But call me a little jaded to the market. I think it's going to be a roller coaster along the way and there will be quite a few more opportunities to add to your Microsoft position. And finally, to wrap up this video, I'm going to dive into the why behind these analyst estimates. I'll give a price projection on Microsoft stock and we'll take a look at these Wall Street price target increases. But first, if you want to use all of these same research tools that I'm using, head over to dividendata.com. We have a 50% off sale where you can lock in half off our annual membership. And if the tool helps you find just one better stock or get in at a better entry point or simply avoid a potential investing mistake, then it way more than pays for itself. The link to the sale is in the description and pin comment below. All right, so why are we expecting earnings per share graph to accelerate? Well, simply it's because, as I mentioned earlier, Microsoft's cloud business, Microsoft Azure, is becoming a larger and larger percentage of Microsoft and it's accelerating. So therefore, the overall growth of Microsoft would accelerate. And you can see analysts are currently projecting in 2030 25% overall year-over-year growth in earnings per share. And by 2031, they have an earnings per share estimate of $44.85. That would imply an 11p ratio based on today's stock price. Now, is Microsoft going to trade at an 11P ratio in 2031? Probably not. Even if the stock doesn't get rerated upwards from here and let's say it trades at 25.1 in that time, that would imply a projected price of $1,125, which would be 128% upside from here and an 18.4% annual return. But I don't know about you, 25.1 is kind of low for a company growing 26% year-over-year. So what if we just go to that 5-year median multiple of like 30? Well, that would imply a 2031 price of $1,345. That would be 173% upside from here. 22.7% annual growth. And if it gets rerated even higher to a 33p ratio, we could be talking about 200% upside in that time. So, it could be very possible that over a 10-year period, Microsoft could get closer back to the prior 10 years where it had a 23% compound annual growth rate. And Wall Street's definitely getting more bullish on Microsoft stock. If you look at all the price targets since they reported earnings, these all came out on July 30th. You see $512, $550, $640, 528, 647, 522, 510, 550, 525. And by the way guys, this is a 12month price target. So where they think the stock will be a year from now. The current consensus price target is $584. That implies 19.76% upside from here. And overall, there's a buy rating on Microsoft stock. And in my personal long-term div stock portfolio, I view Microsoft as one of my core positions. So, I'm not buying more right now, but I am definitely not selling any right now. Again, this is my personal opinion. Do your own research before you make any investing decisions. I'm just sharing what I'm doing. And in general, I think Microsoft still is undervalued and will continue growing very well into the future. However, I am being cautious and I'm not using this 5day rally as something to get enthusiastic about and pile more into the stock. I'm just letting the market digest it. I'm not letting it tell me what to do. And frankly, I'm hoping for a little bit of a sell-off later in the year. So, if you enjoyed the video, make sure to leave a like, comment, and subscribe to the channel. And if you want to use my stock research tool, it's all available at dividenda.com. We just put out our next generation version. It's gotten great feedback from users. And if you want to get 50% off, we have a founding member sale to celebrate the launch of the new tool. So, you should definitely get that while it lasts. With that said, thanks for watching and I'll see you in the next