Is Microsoft Stock Still a Buy After Corruption Accusations?

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At the beginning of last week, Microsoft (NASDAQ:MSFT) made headlines for top tech companies taking a tough stance against Russia for its invasion of Ukraine. The company ended the week making headlines for a corruption scandal. With Microsoft being accused by a whistleblower of spending hundreds of millions of dollars a year to secure foreign contracts, is it now too risky to buy MSFT shares?

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It’s time to take a closer look at what’s going on with this developing corruption scandal. What is the company accused of, who is involved and could there be sanctions against Microsoft? Above all, from the perspective of a potential investor, let’s determine whether Microsoft stock will take a hit.

Whistleblower accuses Microsoft of large-scale corruption

On March 25, Microsoft began making headlines after a former employee went public with accusations that the company was spending heavily on kickbacks and bribes in foreign markets.

As The Verge reported, former Microsoft employee Yasser Elabd accuses the company of spending more than $200 million a year on kickbacks and kickbacks in a number of countries. , including Zimbabwe, Qatar and Saudi Arabia. Elabd was a former director of emerging markets for Microsoft and says he started tracking the issue in 2016. He noticed practices like foreign government departments paying millions of dollars for Office and Windows licenses that were never made. installed. He believes the money was split between the government, contractors and Microsoft employees.

Elabd says it reported the suspicious payments and tried to stop them, but Microsoft was not interested. In an interview, he told The Verge:

“It happens at all levels… All the executives are aware of it, and they are promoting the wrong people. If you do the right thing, they won’t promote you.

Ex-employees – especially ex-employees who have been terminated (as Elabd was) – may lack credibility. They could be seen as having an ax to grind. However, Elabd has been thorough in its documentation of the alleged corruption. Does that mean you should avoid MSFT stocks until the bribery scandal subsides?

Microsoft’s response

Microsoft has an entire page on its website devoted to its commitment against bribery and other forms of corruption. On this page, the company sets out its official position: “We prohibit corrupt payments of all kinds, including facilitation payments. We expect our representatives to share our commitment to integrity, and if we see any signs that a representative is unethical or may be engaging in corrupt conduct, we prohibit doing business with them.

Microsoft responded to the allegations, telling The Verge that they dated back several years, had been investigated and addressed, and that the company had been cooperating with relevant government agencies to address any concerns.

Given the virtual non-movement of MSFT shares on Friday, the market seems happy with Microsoft’s response.

MSFT stock growth won’t be easily derailed

You might be wondering why Microsoft has such an anti-corruption display. This is probably because the company has faced this problem in the past. For example, in 2019 Microsoft was fined $25.3 million. The sanction came after the US Department of Justice caught the company bribing government officials in Hungary, while the US Securities and Exchange Commission found the company had engaged in undue payments in several companies, including Saudi Arabia.

At the time, Microsoft said it had terminated the employees involved in the schemes.

Since the days of that pat on the wrist, MSFT stock has returned 119%.

Conclusion on MSFT shares

The market’s reaction to accusations that Microsoft spends $200 million a year on bribes speaks volumes. MSFT stock closed just a fraction of a percent lower.

I don’t condone the practices that Microsoft employees are accused of, but I don’t think it’s a systemic problem. At least Microsoft seems to be taking all the right steps to fight corruption whenever it’s discovered. With its legacy Office and Windows businesses still very lucrative, you can bet Microsoft is taking steps to ensure it’s not in jeopardy.

As for the impact of this latest bribery scandal on MSFT stock, it still has a consensus “buy” rating from investment analysts polled by The Wall Street Journal, and a “B” rating in Portfolio. Grade. I wouldn’t let this episode convince me to take the MSFT stock, which has been discounted by 6.5% since the start of the year.

As of the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.

Is Microsoft Stock Post Still a Buy After Corruption Accusations? appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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