Microsoft Stock: The Value Play Set to Double Again in 21 Months

InvestorPlace07-17

Microsoft (MSFT) stock is a “value” stock because of its consistent growth of its top and bottom lines. It has over $70 billion in 12-month free cash flow. Free cash flow yield suggests it’s ...

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It could double again in the next 21 months.While you might pay $455 for Microsoft stock, that isn’t necessarily the intrinsic value of its shares. Buffett concerns himself with intrinsic value as a way of assessing whether to buy back Berkshire Hathaway  stock.It came into play in 2011 when the holding company changed its criteria for buying back stock from only when its share price was 1.2x book value to when it was trading below intrinsic value.“Many management are just deciding they’re gonna buy X billions over X months. That’s no way to buy things. You buy when selling for less than they are worth … It’s not a complicated eq","collect":0,"end_time":0,"defaultTopTitle":"investorplace.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4581":"高盛持仓","BK4504":"桥水持仓","LU0640476718.USD":"THREADNEEDLE (LUX) US CONTRARIAN CORE EQ \"AU\" (USD) ACC","IE00BJJMRY28.SGD":"Janus Henderson Balanced A Inc SGD","IE00BMPRXN33.USD":"NEUBERGER BERMAN 5G CONNECTIVITY \"A\" (USD) ACC","LU0157215616.USD":"FIDELITY GLOBAL FOCUS \"A\" INC","LU0234572021.USD":"高盛美国核心股票组合Acc","IE00BFXG0V08.USD":"BNY MELLON GLOBAL LEADERS \"B\" (USD) ACC","IE00B19Z8X17.USD":"FTGF CLEARBRIDGE US LARGE CAP GROWTH  \"AG\" (USD) ACC","IE0005OL40V9.USD":"JANUS HENDERSON BALANCED \"A6M\" (USD) INC","IE00B5949003.HKD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A\" (HKD) ACC","BK4528":"SaaS概念","LU1363072403.SGD":"Fidelity Global Financial Services A-ACC-SGD","IE0004445015.USD":"JANUS HENDERSON BALANCED \"A2\" (USD) ACC","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","BK4592":"伊斯兰概念","IE0003U64NQ7.SGD":"PIMCO BALANCED INCOME AND GROWTH \"M\" (SGDHDG) ACC","BK4585":"ETF&股票定投概念","BK4576":"AR","IE00BMPRXQ63.HKD":"NEUBERGER BERMAN NEXT GENERATION CONNECTIVITY FUND \"A\" (HKDHDG) ACC","LU0787776722.HKD":"AB SELECT US EQUITY PORTFOLIO \"A\" (HKD) ACC","LU0971096721.USD":"富达环球金融服务 A","MSFT":"微软","LU1074936037.SGD":"JPMorgan Funds - US Value A (acc) SGD","BK4587":"ChatGPT概念","BK4525":"远程办公概念","LU0149725797.USD":"汇丰美国股市经济规模基金","BK4566":"资本集团","IE00B19Z8W00.USD":"FTGF CLEARBRIDGE US LARGE CAP GROWTH \"A\" INC","IE00BKVL7J92.USD":"Legg Mason ClearBridge - US Equity Sustainability Leaders A Acc USD","LU0154236417.USD":"BGF US FLEXIBLE EQUITY \"A2\" ACC","BK4577":"网络游戏","BK4527":"明星科技股","LU0742534661.SGD":"Fidelity America A-SGD (hedged)","IE00B4JS1V06.HKD":"JANUS HENDERSON BALANCED \"A2\" (HKD) ACC","IE00BLSP4452.SGD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis SGD-H Plus","BK4579":"人工智能","BK4588":"碎股","IE00BFSS7M15.SGD":"Janus Henderson Balanced A Acc SGD-H","IE00B775SV38.USD":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) ACC","BK4550":"红杉资本持仓","IE0004086264.USD":"BNY MELLON GLOBAL OPPORTUNITIES \"A\" (USD) ACC","BK4503":"景林资产持仓","LU0234570918.USD":"高盛全球核心股票组合Acc Close","BRK.B":"伯克希尔B","LU0417517546.SGD":"Allianz US Equity Cl AT Acc SGD","IE0004091025.USD":"BNY MELLON GLOBAL OPPORTUNITIES \"B\" (USD) ACC","LU0048573561.USD":"FIDELITY AMERICA \"A\" (USD) INC","IE00BJTD4V19.USD":"NEUBERGER BERMAN US LONG SHORT EQUITY \"A1\" (USD) ACC","IE00BDCRKT87.USD":"PINEBRIDGE GLOBAL DYNAMIC ASSET ALLOCATION \"ADC\" (USD) INC"},"translate_title":"微软股票：价值游戏将在21个月内再次翻倍","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MSFT":1,"BRK.B":1},"content_text":"Microsoft (MSFT) stock is a “value” stock because of its consistent growth of its top and bottom lines.\nIt has over $70 billion in 12-month free cash flow.\nFree cash flow yield suggests it’s overpriced but not if you consider its quality relative to the average S&P 500 stock.\n\n\n\n\n\n \n\nSource: VDB Photos / Shutterstock.com\n\n\n\nSince Microsoft (NASDAQ:MSFT) hit a low around $221 in November 2022, Microsoft stock has doubled in value. It could double again in the next 21 months. \nNYU Stern School of Business finance professor Aswath Damodaran recently appeared on CNBC to discuss the Magnificent Seven, including Microsoft. He was quite enthusiastic about the seven tech stocks.\n“We look at the last year and a half, they’ve added $8.8 trillion in market cap … just these seven companies. Just to give you perspective, the second-largest market in the world, China, has a market cap of $12.1 trillion. These seven stocks alone have added more in market cap than the entire German market, the French market, the Swiss market,” Damodaran said on CNBC July 5. \nSo, despite the professor suggesting that the markets have gotten expensive, he also said that he sees the Mag 7 as the “value stocks” of the markets. \nWhile that might seem hard to believe, here are three arguments why Microsoft is a value play relative to the markets as a whole.  \nMicrosoft Is a Money Machine\nAs Damodaran said, investors concerned about earnings and cash flow are looking to Microsoft and the other Mag 7 stocks because of their consistency. \nWould you rather pay 15x cash flow for a company with inconsistent growth or 30.4x cash flow for Microsoft stock, which has increased revenue and operating income by 14.0% and 18.7% on an annualized basis over the past three years? I’d take the latter. \nIn fiscal 2019 (June month-end), Microsoft’s net cash from operations was $52.19 billion, or 41.5% of its $125.84 billion in revenue. In 2023, it was $87.58 billion, or 41.3% of its $211.92 billion in revenue. \nI don’t think you could be much more consistent than a difference in cash flow margin of just 20 basis points over five years. Further, it grew its cash flow by 67.8% since 2019, only 40 basis points less than its revenue growth. \nPrice Is What You Pay, Value Is What You Get\nWarren Buffett is famous for making the statement above about assets acquired. \nWhile you might pay $455 for Microsoft stock, that isn’t necessarily the intrinsic value of its shares. Buffett concerns himself with intrinsic value as a way of assessing whether to buy back Berkshire Hathaway (NYSE:BRK.B) stock. \nIt came into play in 2011 when the holding company changed its criteria for buying back stock from only when its share price was 1.2x book value to when it was trading below intrinsic value. \n“Many management are just deciding they’re gonna buy X billions over X months. That’s no way to buy things. You buy when selling for less than they are worth … It’s not a complicated equation to figure out whether it is beneficial or not to repurchase shares,” Buffett has said. \nTo buy at current prices, one would say they believe Microsoft is worth more than $455 a share. MSFT’s all-time high of $468.35 was set in early July. If you’re buying, you likely feel it’s also worth more than the all-time high. \nFree Cash Flow Yield Isn’t Terrible\nBased on a current enterprise value of $3.37 trillion and trailing 12-month free cash flow of $70.58 billion, it has an FCF yield of 2.1%. Its FCF yield in 2019 was 3.4% based on an enterprise value of $1.14 billion and an FCF of $38.26 billion.\nNormally, I look for stocks with free cash flow yields of at least 4%. However, when you consider that the S&P 500’s FCF yield was 4.08% as of July 31, 2023, and the index has gained 25% over the past year, it is likely 3.06% or less. \nWhen you consider Microsoft’s consistency of cash flow generation, 2.1% is a fair FCF yield relative to the market as a whole. \nAs said earlier, Microsoft grew its cash flow over the past five years by nearly 70%, or 13.8% annually. With all of its AI initiatives underway, I don’t see that slowing anytime soon. \nIt certainly is a money machine worth owning for the long haul.      \nOn the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.\nOn the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.\nWill Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.Technology, Artificial Intelligence, Cloud, Consumer Discretionary, Retail, Software \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSubmit\n\n\n\n\n\n\n\nArticle printed from InvestorPlace Media, https://investorplace.com/2024/07/microsoft-stock-the-value-play-set-to-double-again-in-21-months/.\n©2024 InvestorPlace Media, LLC","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.2","shortVersion":"4.26.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2452396631"}