Microsoft (NASDAQ:MSFT) is also the star of my personal portfolio. I bought Microsoft stock a few years after Satya Nadella became CEO, committing the company’s future to the cloud, and its capital costs. My shares have more than tripled in value. There’s a good reason.
In running your business there are many expenses you can forego during the pandemic.
You can cut employee pay, even furlough them. You can skip out on the rent for a month. Your utility bills are down on space you do not use. Even your toilet paper bill is down.
But there is one bill you will pay, and gladly. That’s your Microsoft bill. Their software is keeping your team working. They even have your credit card number. It is not something you need to think about.
But is it too late for you to get in?
Microsoft Stock by the Numbers
Running Microsoft through the old Excel spreadsheet offers some sad news if you are not in it. The market cap is now $1.33 trillion. That’s $80 billion more than Apple (NASDAQ:AAPL), the world’s second most valuable company.
At that price, Microsoft’s price to earnings ratio is 30. It sells for 10 times its sales. There was $134 billion of cash and securities on the books in December. But the business is still pricey at 9 times sales ex-cash. Microsoft reports first quarter earnings on April 29. Analysts are expecting $1.28 per share of earnings and hoping for $1.34. Revenue is expected to be $34 billion.
Over the last four quarters, Microsoft has put $18 billion into its capital budget. Operating cash flow was $54 billion over the last four quarters. By comparison, AT&T (NYSE:T) has a 2020 capital budget of $20 billion and operating cash flow of $48 billion.
Microsoft is now the fastest-growing big cloud operator. The company continues to increase its cloud market share, now about 20%. Unlike Amazon.Com (NASDAQ:AMZN), however, much of Microsoft’s cloud revenue is in the highly-profitable area of Software as a Service, still just 23% of the total software market.
In short, Microsoft has an incredible balance sheet, it has growth, and it is in the sweet spot of the market.
Microsoft Problems
Everything is not perfect at Microsoft.
It is suddenly having to play catch-up with Zoom Media (NASDAQ:ZM) in videoconferencing. Its Surface Pro 7 laptop is still prone to random shutdowns. Despite a Trump endorsement, it still hasn’t gotten the Department of Defense JEDI contract. It had to pull an ad for its HoloLens2 mixed-reality headset after a group charged its star with Satanism. The latest version of Windows 10 is prone to crashes and boot failures.
But generally the company’s image has improved since co-founder Bill Gates, now retired with a net worth of over $100 billion, was portrayed as a Star Trek villain a quarter-century ago. If you Google CEO Nadella, you will barely find a whiff of criticism, just a wise, bald Indian man with thick glasses, a modern-day Buddha. He is not even a billionaire (yet).
The Bottom Line on Microsoft Stock
A decade ago, Microsoft was a conservative investment you bought for its dividend. It held a monopoly position in operating systems and computer applications but was considered staid and slow-moving.
Today that dividend yields just 1.17%, less than a 30-year bond. But Microsoft is a better investment than ever. Over the last five years it has averaged 64% per year in capital gains. It has more cash than Apple, more even than Berkshire Hathaway (NYSE:BRK.A).
Microsoft is now the best play on the investing board. It’s better than Amazon, better than Alphabet (NASDAQ:GOOGL), much better than Facebook (NASDAQ:FB), which was once threatening to pass it. Of 27 analysts following Microsoft on Tipranks, all but one agrees with me. The average price target is even $192, about 10% ahead of where it is now.
What else can I say? Buy, buy, buy.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in FB, AMZN, MSFT and AAPL.
