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From January 1, 1990 to September 10, 2019 Microsoft stock returned a whopping 34,411% versus the S&P 500 return of roughly 743% or roughly 40x the return of “the market”.
— Source: Stockcharts.com

COMPANY PROFILE

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. MSFT holds a significant amount of IP like: Office, Exchange, SharePoint, Microsoft Teams, Skype, Outlook.com, and OneDrive. MSFT also owns LinkedIn. They offer personal computing technology like: Microsoft Surface, PC accessories, and other intelligent devices; Gaming, including Xbox hardware, and Xbox software and services comprising Xbox Live transactions, subscriptions, cloud services, and advertising; and video games and third-party video game royalties, as well as Search, including Bing and Microsoft advertising.

 

Recent Earnings

Not a lot to dislike from MSFT this quarter:

  • Strong revenue growth

  • Attractive margin expansion

  • Attractive free cash flow

  • Strong dividend growth

  • Early days in cloud infrastructure

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Opinion

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Microsoft scores well as of 9/17/19:

  • 99% high absolute free cash flow

  • 91% high absolute total sales

  • 86% high sales surprise last quarter

  • 81% high ROIC

  • 70% strong price momentum

  • 80% high 3YR ROE

  • 78% low debt to enterprise value

  • 87% high 1YR EPS growth

  • 89% high absolute operating margins

Q1 2020: The consumer segment is a steady-eddy grower with high recurring revenues. The Cloud is where the growth is and Microsoft continues to compete well. Roughly 30% of workloads are no on the cloud so there’s a long runway for growth as companies adopt cloud solutions. Once you’re on the cloud, the recurring revenue machine can begin so today theres both a new account sales and recurring revenue opportunity that has lots of legs. Yes, the law of large numbers is now a factor for MSFT and others but that does not mean they are sales, I like them as the stable part of the growth basket along with the brands that have bigger opportunities and much more market cap gain potential. Mature is just fine as long as the revenues continue to grow and the recurring revenue war-chest keeps paying dividends and dividend growth.

Today’s Microsoft isn’t the same brand as the Microsoft you knew during the Internet bubble. Microsoft was the biggest company by market cap at the bubble peak and it’s likely to be the biggest company again. The amount of growth drivers current at MSFT is incredibly impressive. Microsoft is a leading brand across a variety of important consumer and B2B categories: Big data, AI, Cloud Computing, Video Gaming, Personal Computing, & Social. Under CEO Satya Nadella, Microsoft has thrived across many segments and in 2018 generated $110.4 billion in revenue.

Nothing not to love here, MSFT is executing unbelievably well. The stock hit the $1 trillion market cap and seems to be firing on all cylinders. It’s not a cheap stock at 25x 2020 numbers but in a low growth world, people pay up for the stability and predictability that’s embedded in MSFT. It’s become a recurring revenue machine and a cash flow generating monster with a huge hoard of cash on the balance sheet. That’s my kind of stock! It’s ironic that most people don’t think of Mister-softy as an innovative, tech brand but they are missing the “new Microsoft “ story. Microsoft has significant IP and intangible assets tied up in the company and is the owner of some of the most recognizable brands around the globe. They dominate corporate computing and continuously add new products and services and their cloud division, Azure is in full beast mode. Microsoft is what I call a GARP stock, growth-at-a-reasonable price. Buy the dips here.