Many people probably noticed that the stock markets of the world collapsed this week, following steep declines over the past 12 months. The rational question is “has the damage stopped?” To be sure, people’s tolerance for risk, and their trust in the information they receive, are low. People must now be enticed with much higher returns for seemingly safe investments, which translates into lower prices on risky assets like stock. But just how low is low?

Consider a blue chip company, Microsoft. In the past year, a share of MS has fallen from $37.5 to $21.5, or 43%, despite the fact that MS has reliable earnings growth, cash flow, and no debt. Indeed, MS’s ratio of most recent earnings to its price is 11.5, a common P/E ratio for power utilities.

Further, MS has a cash stockpile of over $21 bln, and the P/E ratio of the operational side of MS becomes 10.26. That means that if MS has flat sales growth, it will be able to amass a cash horde equal to its current market price in less than 10 years.

Put still another way, if MS were to never grow its business again ever, and investors require an 8% per year return on risky equity capital (a historical average figure), MS should be priced at a 12.5 P/E ratio, or $23.4. MS is currently priced as if it will never have earnings growth, and indeed, over the next several decades, its earnings will decline a bit.

So, if the sky is truly falling and the US will never recover, stocks like MS are still a bargain at their current prices. Investors with even a trace of long term optimism should consider the recent market collapse as an opportunity to profit.