Bill Gates is super rich but his when high-flying computer software business has been inside the doldrums given that mid-2002 after falling from the $35 amount. The issue with Microsoft (MSFT) may be its failure to grow each its revenues and earnings in the superlative rates the company as soon as enjoyed.

Any company the size of Microsoft, with a market-cap of $242 billion, will discover growth an issue due to the fact of its size. But this isn’t to say the stock is dead. Far from it, Microsoft remains a viable long-term software organization and is money rich with $34 billion or $3.28 per share in cash. This gives the stock lots of monetary flexibility to create or purchase growth technologies. Microsoft just announced it would invest $1.1 billion in R&D at its MSN Internet unit within the FY07. And according to the Wall Street Journal, Microsoft is exploring the possibility of getting a stake in Internet media business Yahoo (YHOO) to take on Internet advertising behemoth Google (GOOG)

But with an estimated five-year earnings growth rate of a pitiful 12%, the business has its work cut out for it. Trading at 16.30x its estimated FY07 EPS of $1.44, the stock isn’t costly but appears being priced not being a growth stock.

Its PEG about the surface of 1.51 is not inexpensive, but if you discount in the money of $3.28 per share, the estimated PEG falls to close to 1,0, a decent valuation. Also, if Microsoft can improve on its estimated 12% growth rate, the PEG would decline further.

The fact is Microsoft on the current price deserves a look. In case you want to play the stock but don’t want to shell out the $2,347 for any 100-share block, you may want to take a look at the long-term choices, also known as LEAPS. For instance, the in-the-money January 2008 $22.50 Microsoft Call LEAPS not set to expire right up until January 18, 2008 currently costs $380 a contract (100 shares) 

This means you risk a total of $380 for the chance to participate in the prospective upside of 100 shares of Microsoft above the next 20 months. The breakeven price is $26.30. If Microsoft breaks $26.30, you would begin to make funds in your LEAPS. Conversely, if Microsoft fails to do anything, your maximum risk is $380 for the initial option play.

Warning: The aforementioned example is for illustrative purposes only and not to be construed as an actual option strategy. Due for the higher risk inherent in options, I recommend you speak with an investment professional before deciding to employ any strategy involving alternatives.

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