I don't know much about technology. I don't follow the industry. I don't know the jargon. My wireless router wasn't even password-protected until about a month ago -- I just couldn't figure the damn thing out.
But I do know that Microsoft
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What gets me excited about Microsoft boils down to this: Apple
But lost in this overly simplistic comparison is a simple truth: Microsoft is outrageously profitable, its balance sheet is bulletproof, and its stock trades at a valuation that makes sense in only the most offensively cynical scenarios.
Start by looking at some basic statistics:
Metric |
Value |
---|---|
Market Cap |
$220 billion |
Share Price |
$25.00 |
Cash per Share |
$4.24 |
TTM EPS |
$1.93 |
Forward P/E Ratio |
10.9x |
Past 5-Year Growth Rate |
11% |
Next 5-Year Growth Rate (expected) |
9.3% |
Source: Yahoo! Finance.
Here you have a $25 stock, with 17% of that value made up of cash in the bank. Back out the cash just sitting there collecting dust, and you get an enterprise value of about $20.75 per share. Simple math: That's 11 times trailing earnings, which is perfectly insane given how low interest rates are.
And what do you get for this unloved stock? A company that still commands more than 90% market share. A company with a near monopoly, where both consumers and corporations realistically have to use Microsoft Office to remain relevant. By any stretch, a company with one of the most powerful moats in the world.
I won't argue that Microsoft's potential to change the future surpasses its nemesis, Google
Pick your odds
When a stock like Microsoft trades around 11 times earnings in a zero-interest rate environment, you can throw around some wild scenarios that still leave the probabilities of success in your favor.
If Microsoft never again grows earnings from now until the end of time, shares would still be a bargain. If it lit $10 billion of cash on fire just to watch it glow, shares would still be a bargain. If Google Docs takes off like wildfire and Office sales fall 50%, Microsoft's total net income would fall by roughly 25%, in which case shares would still roughly match the valuation of the broader market. Create your own adventure: You can torture a range of possibilities and still struggle to come up with a scenario where Microsoft's shares aren't reasonably cheap. That's when investing gets fun.
And many of the folks who do actually follow Microsoft (and can work a wireless router) aren't remotely this pessimistic. Average analyst earnings estimates are anything but ominous:
Year |
2011 |
2012 |
2013 |
---|---|---|---|
EPS Estimates |
$2.32 |
$2.61 |
$3.05 |
Source: Capital IQ, a division of Standard & Poor's.
Our Foolish tech expert Eric Bleeker also thinks doomsday forecasts for Microsoft's Office are bunk. As he wrote this week:
Microsoft's business unit is being pitched as future roadkill by some, but I think the cross-sale opportunity on the applications surrounding Office is misunderstood. Given better tie-ins and having partners sell their product line as a fully packaged solution, the company has some great opportunities to expand its revenue away from the Office suite. Really, it's just following the path of its large IT peers. Microsoft is trying to become a one-stop shop for clients' needs.
Low hurdles
The world's best investors, most notably Warren Buffett, have made their fortunes scooping up unloved companies the market has written off. Charlie Munger, Berkshire Hathaway's
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