Microsoft… it’s not the sexiest company in the world by any means but in many ways, Microsoft has been flying under the radar. Just think about this for a minute. When you look at Berkshire Hathaway, you have a company that is mostly powered by its strong insurance business. Thanks to that continued cash flows from that business, the company led by Warren Buffett has been able to diversify its business, buy strong holdings that required a lot of cash and investments such as rail road companies, etc. Then you have Microsoft, the company now led by Steve Ballmer. I don’t think many would put him in the league of Buffett and I’m not arguing that he should either. However, I think it’s fair to say that Microsoft is making a solid charge for the next generation of tech. It was built on the foundation of a dominant operating system (Windows) and software (Office) and has been able to build several incredibly strong businesses thanks to the cash flows generated by those businesses. I might be stretching things a bit but it’s not as crazy as you might initially think.
What MSFT Has Done With Its Cash In Recent Years
#1-Return Cash To Shareholders – While companies such as Google and Apple have continued to come under fire for their reluctance to return cash to shareholders, Microsoft has been able to both pay out dividends and buy back shares.
#2-Invest In Key Businesses – Microsoft has like Google been involved in trying to build other businesses but I would argue that at least in some regards, they’ve had better success. What exactly? -
XBox Console: A few years ago, many thought the venture would fail but it has proved to be incredibly valued. Not only is it the top gaming console on the market but it is giving Microsoft a very valuable lead going into the transformation of the living room. I caution all of you to not underestimate this part. Google, Apple, Sony and others are all trying to lead this effort to transform the living room where users might end up switching from cable to a subscription from one of these companies. Microsoft already has its foot in the living rooms, has millions of users already paying a monthly bill and it will not be that big of a stretch to continue adding content and services to what is already much more than a gaming console.
-Online Businesses: There is no doubt that these businesses have been money losing businesses for several years now but Bing and other services have at least made themselves the top alternative to Google, has a great relationship with Facebook thanks to its early investment, etc. Not many companies would have had the resources to even make a run at these businesses but Microsoft has set itself in a great position in what is quickly becoming a very connected world.
A Look At the Microsoft (MSFT) Numbers
Let’s take a look at the numbers for Microsoft:
Ticker Name Price EPS PE Ratio PE Next Year Return YTD Sales Growth Analyst rating Book Value Beta
MSFT Microsoft Corp 30.02 2.73 10.84 9.7 14.52 11.94 4.28 8.17 0.92
I personally feel like Microsoft should be trading at a higher P/E given the strength of its businesses and both the recent growth in sales and earnings but also potential for that growth to keep up going forward.
What are your thoughts on Microsoft? Do you think it’s a good purchase this price?