Now trading at a price of $276.04, Microsoft has moved 1.38% so far today.
Microsoft Corporation is an American multinational technology company which produces computer software, consumer electronics, personal computers, and related services. The company has returned a 1.0% dividend yield over the last 12 months.
Snapshot of the Company's Strong operating Margins:
| 2019-06-30 | 2020-06-30 | 2021-06-30 | 2022-06-30 | |
|---|---|---|---|---|
| Revenue (MM) | $123,495 | $140,503 | $165,936 | $196,109 |
| Revenue Growth | n/a | 13.77% | 18.1% | 18.18% |
| Gross Margins | 67.15% | 68.99% | 69.82% | 69.16% |
| Gross Margins Growth | n/a | 2.74% | 1.2% | -0.95% |
| Operating Margins | 34.79% | 37.69% | 42.13% | 42.52% |
| Operating Margins Growth | n/a | 8.34% | 11.78% | 0.93% |
| Net Margins | 31.77% | 31.52% | 36.92% | 37.09% |
| Net Margins Growth | n/a | -0.79% | 17.13% | 0.46% |
| Earnings Per Share | $5.13 | $5.85 | $8.15 | $9.75 |
| EPS Growth | n/a | 14.04% | 39.32% | 19.63% |
| Diluted Shares (MM) | 7,643 | 7,571 | 7,519 | 7,464 |
| Free Cash Flow (MM) | $38,260 | $45,234 | $56,118 | $65,149 |
| FCF Growth | n/a | 18.23% | 24.06% | 16.09% |
| Capital Expenditures (MM) | $13,925 | $15,441 | $20,622 | $23,886 |
| Net Debt / EBITDA | 1.26 | 0.92 | 0.68 | 0.43 |
Microsoft Is Fairly Priced at Current Levels:
Microsoft has a trailing twelve month P/E ratio of 30.64 compared to the Technology sector's average of 27.16. The company doesn't issue forward earnings guidance, and the mean growth rate of its last 5 years of reported EPS is 52.5%. On this basis, the company's PEG ratio is 0.58. But we cannot assume that Microsoft's impressive past EPS growth rate is sustainable. It is more prudent to calculate the company's PEG ratio with the expected 5-year EPS growth rate of the entire market, which is 13.05%. This more cautious approach gives us a PEG ratio of 2.35, which suggests that the company's shares are overvalued.
Microsoft's P/B ratio is 11.05 compared to its sector average of 6.23. The company is likely overvalued in terms of its net asset value. The company's shares are currently trading 370.89% above their fair value as expressed by Benjamin Graham's formula:
√(22.5 * 5-year average EPS * book value per share) = √(22.5 * 6.21 * 24.59) = $58.62
Microsoft's strong cash flow trend and reasonable levels of debt attenuate the company's lofty valuation in terms of earnings and assets.
