Home Stock Should you buy Microsoft stock? These are important numbers to consider...

Should you buy Microsoft stock? These are important numbers to consider now


If you are thinking of buying a stake in Microsoft Corp. or already own them, you need to understand the metrics and key issues associated with the company.

The numbers below show how Microsoft
MSFT,
-1.31%

Compare with competitors and where are its strengths and weaknesses. Remember that no two companies are alike – not even competitors in every space. Investors need to do their own research to make sound long-term decisions.

The main driving force

Since Satya Nadella took over as CEO in February 2014 and dramatically changed the direction of the software giant co-founded by Bill Gates, Microsoft has become a key player in cloud computing. . That move has brought in significant returns for the investors. Shares have risen 680% since then, including dividends, more than four times the S&P 500 Index
SPX,
-0.92%
.

The stock could be more upbeat as growth remains very strong, regardless of the size of the company. Microsoft has a market cap of $ 1.9 trillion. Often times, companies of this size have difficulty posting fast growth simply because they are too large. However, the 46-year-old software company grew sales 16.7% in the fourth quarter.

Microsoft’s cloud services and server products, a business worth $ 41.4 billion last year, grew 25.8% in the fourth quarter. The hottest product line is the Azure cloud service. Customers love Azure because it makes them more productive and competitive. So they will continue to join and expand usage when they sign in.

“We are witnessing the dawn of a second wave of digital transformation that is sweeping every company and every industry,” said Nadella.

Goldman Sachs analyst Kash Rangan is estimated to have reached $ 29 billion a year, with Azure sales growing 50% year-on-year. (Microsoft doesn’t give numbers or make predictions for Azure.) Microsoft also provides AI software; Microsoft Office suite products such as Word, XL and Outlook; popular video game hardware; LinkedIn professional website; and of course, Windows. You may find that four of those businesses are growing 10% or more, but Windows and search are sluggishly.

(Company profile)

Geographic reach

Microsoft does half of its business outside of the US This is good for investors because in times of strong and synchronized global growth as we see it today, emerging economies tend to growing much faster than the United States.

“We are investing to bring our cloud services to more customers, announcing seven new data center regions in Asia, Europe and Latin America,” Nadella announced.

One loophole is that a stronger dollar will hurt Microsoft, as this will devalue foreign income when they exchange it for greenback.

(Company profile)

Profitability

Overall, Microsoft is not growing as fast as many of its competitors. But the ubiquity of its cloud products and services supports outstanding profit margins. For investors, this makes sales growth relatively slower.

“Microsoft has been ahead of the pack with a modern cloud platform,” said JP Morgan analyst Mark Murphy.

(FactSet)

Cash flow and cash flow

Firms with more cash and stable cash flow have an advantage because this helps them avoid relying on banks to raise weak capital. It helps them take control of their own destiny. Microsoft uses its cash to buy back shares and pay a 0.87% dividend. But it also mines a $ 132 billion cash fund to grow through acquisitions.

For example, Microsoft recently announced the purchase of Nuance Communications, giving Microsoft solid entry into the healthcare arena. Nuance provides artificial intelligence (AI) used in the field to analyze conversations and help providers communicate with patients.

The risk is that Microsoft could make bad acquisitions and waste cash, otherwise the money could be better spent by giving it back to shareholders. For example, Microsoft made the mistake of buying Nokia’s mobile phone business and digital marketing services company aQuantive. This is why many investors prefer that firms simply return cash to shareholders through dividends and repurchases, rather than risk wasting it.

(FactSet)

Moat

Great investment Warren Buffett loves companies with a protective moat. Moats create pricing power and make it harder for a competitor to win over customers. According to Dan Romanoff at Morningstar, Microsoft likes generosity for the following reasons, the company, like Buffett, puts a lot of emphasis on ditches when analyzing companies.

First, a lot of Microsoft’s business software requires a pretty steep learning curve, so the customer is locked into the product. In addition, swapping out software can disrupt your business. This creates a conversion cost. Next, Microsoft products and services benefit from network effects. As more people use Azure, Microsoft Office, LinkedIn, etc., these services become more valuable to everyone because they connect more people together. Network effects create value for customers, discourage them from jumping.

Stock valuation and performance

Microsoft’s stock has outperformed some of its competitors over the past five years, but it still has a relatively low price-to-earnings (P / E) ratio relative to them. Remember that relatively new companies like CrowdStrike
CRWD,
+ 3.02%

may have a high P / E ratio as they are still reinvesting heavily in their business, shifting cash out of earnings per share.

(FactSet)

Wall Street Viewpoint

Here’s a summary of Wall Street analysts polled by FactSet:

(FactSet)

Important Dates
  • April 27 – Microsoft reports first quarter earnings.

  • May 19 – Ex-right date.

  • July 20 – Microsoft reports second-quarter earnings.

With the report by Philip van Doorn.

Michael Brush is columnist for MarketWatch. At the time of publication, he had no position in any of the stocks mentioned in this column. Brush recommended MSFT, AMZN, GOOGL and CRM in its stock newsletter, Inventory markers. Follow him on Twitter @mbrushstocks.

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