Investors are about to get a flood of fresh information about Microsoft's (MSFT -1.00%) business. The software giant will announce fiscal 2023 fourth-quarter results on July 25, in a report that will likely feature an official outlook for the fiscal year 2024. There are big questions around the company's growth opportunities, profitability, and cash demand trends heading into that announcement.
Smart investors know how to separate important growth metrics from the noise around quarter-to-quarter sales volatility. With that in mind, let's look at three factors that really make this stock stand out as an investment today.
1. Microsoft's business is diverse
One great reason to like Microsoft stock is its diversity. You can own exposure to enterprise cloud services by buying Amazon, for example. Add Palo Alto Networks (PANW 0.68%) to your portfolio for the cybersecurity industry. And purchase Take-Two Interactive to benefit from long-term growth in the video game industry.
Or you could just buy Microsoft and gain exposure to all of these growth niches and more, including artificial intelligence (AI) and productivity software. There's value in owning such a diverse grouping of expansion opportunities all under one brand umbrella. Even if a few of Microsoft's big bets don't pay off, returns from the winners will likely offset those disappointments.
2. Microsoft is highly profitable
Microsoft's financial metrics have worsened a bit since the pandemic highs reported in 2021 and early 2022. But the company remains one of the most efficient generators of both cash and profits.
Take last quarter, for example, when operating income jumped 15% year over year after accounting for currency exchange rate swings. That boost resulted in a whopping $22.4 billion of profit on just $53 billion of sales.
MSFT Operating Margin (TTM) data by YCharts
Few companies can achieve anything like the resulting operating margin of 44% of sales. Apple (AAPL 2.48%), by comparison, sports a 29% margin today. Amazon's rate is closer to 3%, and Palo Alto Networks has only just recently achieved profitability.
3. Microsoft is a pricey stock
As you might expect, an investor will have to pay a premium for these valuable assets. Microsoft stock is now valued at over 12 times annual sales, roughly even with faster-growing Palo Alto Networks. You could own Apple for a relative bargain of 8 times sales. Amazon is cheaper still at less than 3 times sales.
It's possible that Microsoft's valuation will come down closer to these peers in the coming quarters, especially if the company announces disappointing sales results in late July or forecasts a tough operating year ahead. But the more likely scenario is that the business will continue steadily winning market share in several huge global tech industries. It won't be long before the cyclical downturn ends in its operating system segment or in its consumer tech devices division, either.
That bright long-term outlook, plus Microsoft's industry-leading profit margins, ample cash flow, and rising dividend payment, all make it an extremely attractive stock to consider putting in your portfolio. For tech stock investors who don't want to take excess risk in searching out the next big thing in a fast-moving industry, this business offers a great way to gain exposure to these trends in one of the most valuable companies on the planet.
