Microsoft in Brief

A strong performer from today's morning trading session is Microsoft, whose shares rose 1.6% to $335.17 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.

Microsoft's Valuation Is in Line With Its Sector Averages:

Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Microsoft has a trailing 12 month P/E ratio of 32.5 and a P/B ratio of 11.28.

Microsoft's PEG ratio is 2.21, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

Growing Revenues With Increasing Reinvestment in the Business:

2018 2019 2020 2021 2022 2023
Revenue (MM) $110,360 $125,843 $143,015 $168,088 $198,270 $211,915
Gross Margins 65% 66% 68% 69% 68% 69%
Operating Margins 33.0% 35.0% 37.0% 42.0% 42.0% 42.0%
Net Margins 15.0% 31.0% 31.0% 36.0% 37.0% 34.0%
Net Income (MM) $16,571 $39,240 $44,281 $61,271 $72,738 $72,361
Net Interest Expense (MM) $2,733 $2,686 $2,591 $2,346 $2,063 $1,968
Depreciation & Amort. (MM) $7,700 $9,700 $10,700 $9,300 $12,600 $11,000
Earnings Per Share $2.13 $5.06 $5.76 $8.05 $9.65 $9.68
EPS Growth n/a 137.56% 13.83% 39.76% 19.88% 0.31%
Diluted Shares (MM) 7,794 7,753 7,683 7,608 7,540 7,472
Free Cash Flow (MM) $32,252 $38,260 $45,234 $56,118 $65,149 $59,475
Capital Expenditures (MM) $11,632 $13,925 $15,441 $20,622 $23,886 $28,107
Net Current Assets (MM) -$9,857 -$5,611 $72 -$6,191 -$23,593 -$21,496
Long Term Debt (MM) $69,653 $63,361 $55,136 $48,260 $44,119 $41,990
Net Debt / EBITDA 1.51 1.14 0.72 0.41 0.34 0.12

Microsoft benefits from growing revenues and increasing reinvestment in the business, strong margins with a stable trend, and exceptional EPS growth. The company's financial statements show low leverage and generally positive cash flows. However, the firm has slimmer gross margins than its peers.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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