Microsoft (NASDAQ: MSFT)
Quality Value Investing Research Report | $MSFT Updated Coverage | October 2024
In this updated coverage research report, we reexamine the information technology sector company Microsoft Corporation — MSFT 0.00%↑ — to see if it continues to meet Quality Value Investing’s (QVI) Real-Time Stock Picks criteria based on our checklist analysis of the business’s current wealth and the share price’s present value.
Note: This research report was written and published before Microsoft’s fiscal year 2025 first-quarter earnings release scheduled for the morning of October 30, 2024.
Microsoft | Company Current Wealth
Value Proposition
Microsoft is a dividend-paying large-cap stock in the information technology sector’s systems software industry. It was added to the QVI Real-Time Stock Picks on June 28, 2011, at a $20.12 cost basis per share.
Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The company sells its products through OEMs, distributors, and resellers, and directly through digital marketplaces, online, and retail stores. Microsoft was founded in 1975 and is headquartered in Redmond, Washington, USA.
Economic Moat
Morningstar assigns Microsoft a wide moat rating based primarily on switching costs, network effects, and cost advantages.
QVI’s Value Proposition Elevator Pitch for MSFT
Microsoft is the reigning king of productivity software, whether business or personal, cloud or hard drive.
QVI’s value proposition rating for Microsoft: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
Per the table below, Microsoft’s trailing three-year annualized revenue growth was double-digit positive, in line with the S&P 500 topline growth of 17.10%. Moreover, the company’s positive revenue growth of 15.70% aligned with the broader market’s +18.00% for the most recently reported twelve months.
Further down the income statement, Microsoft had a high double-digit net positive profit margin from a 69.80% gross margin, outperforming the S&P 500’s net of 21.00% from a gross of 54.50%.
Returns on Equity and Invested Capital
Microsoft’s senior management produced a return on equity, or ROE, above QVI’s targeted threshold and aligned with the S&P 500’s ROE of 53.80%.
Stock buyback programs often elevate ROE. For example, in September, Microsoft’s board of directors approved purchasing $60 billion of its common shares while announcing a 10% increase in its quarterly dividend and additional capital spending on AI infrastructure.
Microsoft’s return on invested capital, or ROIC, outperformed QVI’s threshold and matched the broader market’s 23.70% return. In addition, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are outstanding capital allocators (Source of WACC: GuruFocus).
QVI’s business fundamentals rating for Microsoft: Bullish.
Next, we’ll look at the company’s enterprise downsize risks, the stock price’s present value, including share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.