I have chosen two technology giants, Microsoft and Apple, as potential stock investments. Microsoft is one of the leading software companies, primarily popular for its Windows Operating System and Microsoft Office Suite. Microsoft’s stock symbol is MSFT and it is traded on the Nasdaq Stock Exchange. The 52 weeks range for Microsoft as of May 21, 2018 is $67.50-$98.69 and the company’s current stock price on latest closing day was $97.60. In other words, the company’s stock is currently trading at a price that is very close to its highest value over the last year. Microsoft’s P/E ratio is 79.35 (Yahoo! Finance) which means the investors are willing to pay $79.35 per share for each dollar worth of Microsoft’s earning.

In order to determine whether Microsoft makes a good investment candidate or not, I looked at a variety of financial ratios as well as the company’s financial statements. The company’s high P/E ratio indicates that the investors are optimistic about the company’s future prospects. This is further confirmed by the fact that the company’s current stock price is near 52 weeks high. However, I am hesitant to recommend Microsoft as an investment candidate at this point because I believe the investment will be expensive and my relative will end up paying too much for each dollar worth of earnings. I have also noticed on Morningstar website that the industry’s average P/E ratio is somewhere around 20. Microsoft may be doing well but I fear the stock is expensive at this time.

I consulted Morningstar’s Microsoft profile to look at the company’s gross profit margin and operating profit margin data over the last few years. Microsoft’s gross profit margin has continued to decline since 2010, the only exception being 2017 when it rose only negligibly over 2016 level. Similarly, Microsoft’s oeprating profit margin also showed the same trend, with 2017 level being slightly better than 2016 level. It seems the company did well in 2017 and the investors rewarded it with stock price appreciation. However, the company’s performance in 2017 still lags behind the strong performance it showed in years before 2016. I believe it is important to watch Microsoft’s performance going forward to reach a more reliable conclusion as to whether the improvement in 2017 was just an outlier or it was an indication of long-term improvement.

The company’s fixed asset turnover and total asset turnover ratios also showed overall deterioration over the period 2010-2017. It is clear that Microsoft had been struggling for a while and 2017 might have been the first year it showed signs of successful transformation. It is possible that Microsoft’s share price may increase further going forward but I am not confident at this point to recommend it to my relative.

The second stock investment I chose is Apple which is famous for a variety of hardware and software products including iPhone, iOS operating system, and iTunes. Apple’s stock symbol is AAPL and it is traded on the Nasdaq Stock Exchange. The 52 weeks range for Apple as of May 21, 2018 is $142.20-$190.37 and the company’s current stock price on latest closing day was $187.63. Like Microsoft, Apple’s stock is also currently trading at a price that is close to its highest value over the last year. Apple’s P/E ratio is 18.15 (Yahoo! Finance) which means the investors are willing to pay $18.15 per share for each dollar worth of Apple’s earning.

Apple’s P/E ratio is slightly under the industry average which is a surprise to me because Apple is one of the leading players in the technology sector. It is clear that Apple may not be generating the same enthusiasm among the investors that Microsoft is. However, this is not necessarily a bad thing as it presents an opportunity to invest in Apple’s shares at an attractive price which might enable my relative to earn better overall returns over the medium to long term as compared to an investment in Microsoft’s shares. I recommend my relative to invest in Apple, and I have also examined Apple’s financial statements to make sure the company is in a strong financial health.

I consulted Morningstar’s Apple profile to look at other ratios as well as the company’s financial statements. Apple’s gross profit margin and operating profit margin figures in 2017 were, indeed, at the low end of last seven years range. However, the figures were still close to the ones in most other years with the exception of 2012 when Apple seems to have a particularly good year. The company’s inventory turnover has taken a hard hit over the last few years, a sign of growing competitive intensity. However, 2017 was a good year in terms of both total revenue and earnings per share which were the second highest in the period 2013-2017. It is also important to know that Apple is still sitting on more than $74 billion cash which is the highest in the period 2013-2017. One cannot deny the fact that Apple is feeling the consequences of growing competition, which might be why the investors are not as enthusiastic about Apple as they might have been during Steve Jobs era. However, this also presents a great opportunity to buy Apple’s stock on the cheap. We can also take comfort in the fact that Apple has a strong financial health and ample cash to take advantage of growth opportunities as well as fund R&D initiatives.