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Estherbunny
2021-11-03

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Microsoft Is a High-Quality Name with a Premium Price Tag

MSFT stock sports solid profitability and growth -- but that comes at a cost

Microsoft Is a High-Quality Name with a Premium Price Tag

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The company has solid fundamentals and some special features that make investors happy, such as buybacks and dividend increases. With gains of about 50% year-to-date (YTD), MSFT stock has also outperformed the broader U.S. stock market. Now all eyes are on the fiscal 2022 first-quarter earnings report, which the company released on Oct. 26.\nDoes MSFT stock have more upside potential this year? The earnings report is crucial to the company maintaining its strong momentum. Mainly, the two factors that now concern me about Microsoft are the premium reflected in its stock price and the potential slowdown in its revenue growth.\nHere’s what you should know about MSFT stock moving forward.\nMSFT Stock: Consistency and a Strong Balance Sheet\nMicrosoft is a textbook top-quality stock. It’s highly profitable and has increased revenue and shareholder equity as well as reduced debt. At the same time, it has also implemented a share buyback program and consistently increased its dividend. In fact, that consistency is something I appreciate the most about MSFT stock.\nThe growth numbers speak for themselves here. Data taken fromMorningstarshows solid&nbsp;3-year average growth&nbsp;for revenue (15.06%), operating income (25.87%), net income (54.63%) and diluted earnings per share (EPS) (55.77%). The strong balance sheet is another positive factor. Microsoft has reduced its debt-equity (D/E) ratio to o.42.\nOn top of all this, one of my favorite financial metrics — free cash flow (FCF) — is also demonstrating strength for this name. The free cash flow has consistently increased for years now. For fiscal 2021, Microsoft reported FCF of $56.12 billion, an increase of 24% year-over-year (YOY). This FCF was particularly exceptional, as the company reported a high gross margin (68.9%), operating margin (41.6%) and net margin (36.4%) for the period as well.\nAll told, Microsoft was firing on all cylinders last year — and it seems to be continuing that strength.\nDividend Increases and Share Repurchases\nLike I noted before, another reason to like MSFT stock are its dividend increases and share repurchases. The company’s consistency in this department is noteworthy. What’s more, on Sept. 14, Microsoft&nbsp;announced&nbsp;some very positive news for shareholders.\nThe news? A quarterly dividend of 62 cents — an 11% increase over the previous quarter — as well as a “new share repurchase program authorizing up to $60 billion in share repurchases.”\nFor some time, the number of shares outstanding here has been declining while the yearly dividend has been climbing. In particular, Microsoft seems to be keeping up with an average 10% annual increase for its dividend. Notably, though, its current payout of around 27% is both sustainable and also the lowest ratio reported in recent years.\nSo, Microsoft has rewarded investors with a consistent dividend policy and consistent share buybacks. That’s a big plus for investors. But the company could easily increase its dividend rate from here, given the current payout ratio. My best guess? Management will soon weigh the tradeoff between future growth and returning capital to its shareholders.\nWhat to Make of Recent Earnings\nDividends and the like aside, though, I have had a different main concern with MSFT stock. My worry? The potential slowdown in revenue and earnings. However, the recent earnings report has revealed some positives.\nWhen Microsoft&nbsp;released&nbsp;Q1 fiscal 2022 earnings in late October, it showed a “strong start” to the year. Specifically, Executive Vice President and CFO Amy Hood noted that Microsoft Cloud generated “$20.7 billion in revenue for the quarter, up 36% year over year.” Furthermore, revenue for the period came to $45.3 billion, an increase of 22%. Meanwhile, operating income was $20.2 billion — up 27% — and non-GAAP net income was $17.2 billion. The latter was an increase of 24%. Finally, diluted non-GAAP earnings per share (EPS) was $2.27, up 25%.\nThese financial results show that a growth slowdown doesn’t seem to be in the cards — at least not yet. But if we do see any misses in the coming quarters? Well, investors may want to take future results with a grain of salt.\nIn a word, it all comes down toseasonality. In the company’s&nbsp;annual 10-K report&nbsp;for fiscal 2021, Microsoft stated the following (Page 40):\n<blockquote>\n “Our revenue fluctuates quarterly and is generally higher in the second and fourth quarters of our fiscal year. Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period.”\n</blockquote>\nSo, while investors may be inclined to worry about misses in the future, they may not have to as much — especially for the first and third quarters.\nA Diversified Business and Pricey Stock\nThe last thing I will note about Microsoft, however, is the company’s relevance in recent years — and its diversity.\nFor one, Microsoft has embraced the digital work environment whole-heartedly. It has several diversified streams of revenue — from the Xbox to LinkedIn to cloud computing, virtual reality (VR) and artificial intelligence (AI). Moreover, it has also made changes to its&nbsp;investor metrics, heightening transparency and helping investors evaluate the company’s progress accurately. But does all of this mean you should invest in MSFT stock?\nThe pluses about the company aside, MSFT is still a tough name to consider buying right now. Of course, relative valuation is just one method of analysis. However, data from&nbsp;CSI Market&nbsp;is&nbsp;mixed&nbsp;on whether Microsoft is undervalued or not. For example, the price-earnings (P/E) ratio is currently 37.26, compared to the Industry P/E of 35 and Sector P/E of 27.\nThat said, Microsoft also has a PEG ratio of 0.84. This suggests it is undervalued. Still, checking the&nbsp;trailing price-sales (P/S) ratio of 14, the company’s P/S is higher than the sector median as well. The same goes for the company’s price-book (P/B) ratio and price-cash flow ratio.\nOverall, these metrics suggest that MSFT stock is now trading at a premium.\nThe Verdict on MSFT Stock\nAll told, MSFT stock is an excellent name that trades at an extremely high cost.\nThis company boasts solid fundamentals and robust growth. It also returns capital to shareholders. Still, it’s incredibly pricey as well. Any selloff would make for a better risk-adjusted investment opportunity here — unless Microsoft hikes its dividend rate even faster or expands its share repurchase program.\nAt some point, a slowdown in revenue and EPS may come into play. This factor will be crucial for potential investors. However, that may take a long time to arrive as well.","source":"lsy1606302653667","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Microsoft Is a High-Quality Name with a Premium Price Tag</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMicrosoft Is a High-Quality Name with a Premium Price Tag\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-11-03 17:32 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://investorplace.com/2021/11/msft-stock-is-a-high-quality-name-with-a-premium-price-tag/>InvestorPlace</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nMicrosoft (NASDAQ:MSFT) is one of the premier tech giants on the market. The company has solid fundamentals and some special features that make investors happy, such as buybacks and dividend increases...\n\n<a href=\"https://investorplace.com/2021/11/msft-stock-is-a-high-quality-name-with-a-premium-price-tag/\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"MSFT":"微软"},"source_url":"https://investorplace.com/2021/11/msft-stock-is-a-high-quality-name-with-a-premium-price-tag/","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1104890335","content_text":"Microsoft (NASDAQ:MSFT) is one of the premier tech giants on the market. The company has solid fundamentals and some special features that make investors happy, such as buybacks and dividend increases. With gains of about 50% year-to-date (YTD), MSFT stock has also outperformed the broader U.S. stock market. Now all eyes are on the fiscal 2022 first-quarter earnings report, which the company released on Oct. 26.\nDoes MSFT stock have more upside potential this year? The earnings report is crucial to the company maintaining its strong momentum. Mainly, the two factors that now concern me about Microsoft are the premium reflected in its stock price and the potential slowdown in its revenue growth.\nHere’s what you should know about MSFT stock moving forward.\nMSFT Stock: Consistency and a Strong Balance Sheet\nMicrosoft is a textbook top-quality stock. It’s highly profitable and has increased revenue and shareholder equity as well as reduced debt. At the same time, it has also implemented a share buyback program and consistently increased its dividend. In fact, that consistency is something I appreciate the most about MSFT stock.\nThe growth numbers speak for themselves here. Data taken fromMorningstarshows solid 3-year average growth for revenue (15.06%), operating income (25.87%), net income (54.63%) and diluted earnings per share (EPS) (55.77%). The strong balance sheet is another positive factor. Microsoft has reduced its debt-equity (D/E) ratio to o.42.\nOn top of all this, one of my favorite financial metrics — free cash flow (FCF) — is also demonstrating strength for this name. The free cash flow has consistently increased for years now. For fiscal 2021, Microsoft reported FCF of $56.12 billion, an increase of 24% year-over-year (YOY). This FCF was particularly exceptional, as the company reported a high gross margin (68.9%), operating margin (41.6%) and net margin (36.4%) for the period as well.\nAll told, Microsoft was firing on all cylinders last year — and it seems to be continuing that strength.\nDividend Increases and Share Repurchases\nLike I noted before, another reason to like MSFT stock are its dividend increases and share repurchases. The company’s consistency in this department is noteworthy. What’s more, on Sept. 14, Microsoft announced some very positive news for shareholders.\nThe news? A quarterly dividend of 62 cents — an 11% increase over the previous quarter — as well as a “new share repurchase program authorizing up to $60 billion in share repurchases.”\nFor some time, the number of shares outstanding here has been declining while the yearly dividend has been climbing. In particular, Microsoft seems to be keeping up with an average 10% annual increase for its dividend. Notably, though, its current payout of around 27% is both sustainable and also the lowest ratio reported in recent years.\nSo, Microsoft has rewarded investors with a consistent dividend policy and consistent share buybacks. That’s a big plus for investors. But the company could easily increase its dividend rate from here, given the current payout ratio. My best guess? Management will soon weigh the tradeoff between future growth and returning capital to its shareholders.\nWhat to Make of Recent Earnings\nDividends and the like aside, though, I have had a different main concern with MSFT stock. My worry? The potential slowdown in revenue and earnings. However, the recent earnings report has revealed some positives.\nWhen Microsoft released Q1 fiscal 2022 earnings in late October, it showed a “strong start” to the year. Specifically, Executive Vice President and CFO Amy Hood noted that Microsoft Cloud generated “$20.7 billion in revenue for the quarter, up 36% year over year.” Furthermore, revenue for the period came to $45.3 billion, an increase of 22%. Meanwhile, operating income was $20.2 billion — up 27% — and non-GAAP net income was $17.2 billion. The latter was an increase of 24%. Finally, diluted non-GAAP earnings per share (EPS) was $2.27, up 25%.\nThese financial results show that a growth slowdown doesn’t seem to be in the cards — at least not yet. But if we do see any misses in the coming quarters? Well, investors may want to take future results with a grain of salt.\nIn a word, it all comes down toseasonality. In the company’s annual 10-K report for fiscal 2021, Microsoft stated the following (Page 40):\n\n “Our revenue fluctuates quarterly and is generally higher in the second and fourth quarters of our fiscal year. Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period.”\n\nSo, while investors may be inclined to worry about misses in the future, they may not have to as much — especially for the first and third quarters.\nA Diversified Business and Pricey Stock\nThe last thing I will note about Microsoft, however, is the company’s relevance in recent years — and its diversity.\nFor one, Microsoft has embraced the digital work environment whole-heartedly. It has several diversified streams of revenue — from the Xbox to LinkedIn to cloud computing, virtual reality (VR) and artificial intelligence (AI). Moreover, it has also made changes to its investor metrics, heightening transparency and helping investors evaluate the company’s progress accurately. But does all of this mean you should invest in MSFT stock?\nThe pluses about the company aside, MSFT is still a tough name to consider buying right now. Of course, relative valuation is just one method of analysis. However, data from CSI Market is mixed on whether Microsoft is undervalued or not. For example, the price-earnings (P/E) ratio is currently 37.26, compared to the Industry P/E of 35 and Sector P/E of 27.\nThat said, Microsoft also has a PEG ratio of 0.84. This suggests it is undervalued. Still, checking the trailing price-sales (P/S) ratio of 14, the company’s P/S is higher than the sector median as well. The same goes for the company’s price-book (P/B) ratio and price-cash flow ratio.\nOverall, these metrics suggest that MSFT stock is now trading at a premium.\nThe Verdict on MSFT Stock\nAll told, MSFT stock is an excellent name that trades at an extremely high cost.\nThis company boasts solid fundamentals and robust growth. It also returns capital to shareholders. Still, it’s incredibly pricey as well. Any selloff would make for a better risk-adjusted investment opportunity here — unless Microsoft hikes its dividend rate even faster or expands its share repurchase program.\nAt some point, a slowdown in revenue and EPS may come into play. This factor will be crucial for potential investors. However, that may take a long time to arrive as well.","news_type":1},"isVote":1,"tweetType":1,"viewCount":428,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}

Microsoft Is a High-Quality Name with a Premium Price Tag

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