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About Microsoft

Have you ever heard of Microsoft?

If not, we are just frankly confused.

Have you ever heard of Bill Gates?

Well, he and a few other folks who mainstream culture would likely have termed as nerds back in the day practically started and essentially ran an industry (software) and have also invested heavily, and we do really mean heavily in the future of technology, which many would venture to say is artificial intelligence.

And we would agree.

From its founding in 1975, famed technology pioneers and childhood friends Bill Gates and Paul Allen wrote code together as children after school on, initially, a single computer terminal.

Some kids go home and play in the yard and some code and write programs.

From that single computer sprouted a mission for Gates, as most other technology gurus do, he dropped out of Harvard and started a little software company by the name of Microsoft, which generated its first million dollars in sales in 1978, to eventually mark its territory in a variety of other avenues within the technology sphere, and while we would love nothing more than to go into extensive detail regarding this company and its origin story and early years, we simply don’t think that is the best use of our time and your eyes being strained on the screen you are reading this on.

Instead, it would serve us all better if we discussed a bit more about Redmond, Washington-headquartered Microsoft, what it does today, how it generates its revenues and whether or not this company’s stock (NASDAQ: MSFT) is worth considering as an investment for now and for later.

First and foremost, today Microsoft, broadly speaking, is a technology company and one of the largest, most prominent ones at that, in the same general realm as the Googles and the IBMs of the world.

While Microsoft is still just a software company at heart, it has extended its applications through software in many other arenas in different digital spaces.

For instance, the company is home to many other companies and revenue streams that one may or may not have been initially familiar with, as Microsoft currently owns professional social media and professional network LinkedIn, prominent video communications platform Skype, cloud-based software development platform GitHub, the gaming developer behind Minecraft, Mojang, as well as other video game companies such as ZeniMax Media, not to mention its current venture to buy one of the largest video game publishers in the world, Activision Blizzard for nearly $70 billion, as well as owning some of its more notable in-house products used by individuals and enterprises worldwide such as the ever so recession proof Microsoft product line including spreadsheet behemoth Excel, the classic document product of Word, its own search engine, a direct competitor with the largest in the world (Google), Bing, as well as its well received email and messaging platforms integrated within the Teams ecosystem as well as one of the most prolific gaming consoles ever, Xbox, and, of course, it would be silly for us to neglect mentioning the company’s investment in OpenAI, an artificial intelligence research lab run by Silicon Valley wunderkind Sam Altman.

Whether it is from premium subscription holders on LinkedIn, organizations paying for access to Excel, Word, Teams and other Microsoft products, these are just only a few of the main ways in which Microsoft generates revenue.

It’s safe to say that Microsoft has organically and inorganically (i.e., acquired instead of building in-house) developed a variety of diversified yet technologically focused and fairly recession resistant revenue streams, leaving practically no one wondering how or why this company is one of the most valuable technology firms to have ever existed.

Speaking of valuation, according to the company’s current market capitalization, Microsoft is a $2.33 trillion company (yes, with a “t”), which in a sense, is quite unsurprising given that it feels as though whether you are in the classroom or the board room of any organization or enterprise, one or more of Microsoft’s products are more than likely being used, as the company also has done its fair share of damage in the personal computer (PC) and tablet spaces as well.

In keeping all of this background in mind, now would be a good time to delve more into the company’s core financials and other relevant metrics so as to determine whether or not this company’s stock (NASDAQ: MSFT) is worth considering as an investment for the years and decades to come.

Microsoft’s stock financials

Outside of this being a trillion-dollar company, Microsoft has a prevailing share price of $317.59 a price-to-earnings (P/E) ratio of 32.60 along with the fact that it pays out an annual dividend of $3.00 to its shareholders.

With this initial data, it can be objectively concluded that the company’s stock is trading at a value more than it is actually worth paying for at the moment, at least in relation to its intrinsic value (i.e., it is technically overvalued), however, this can perhaps be justified given the recent AI catalyst(s) driving technology companies and their stocks wild, that is, if the company’s revenues have been growing and it is also continuing to make investments in nabbing away market share from the competition, which just so happens to be a very, very wide and deep pool for Microsoft given that it operates in many different corners of the overall technology sector.

Nevertheless, as it relates to its revenues, we will check on this momentarily.

It is also a positive that it pays out a $3.00 dividend to its shareholder base each year given that many (even major) technology firms don’t issue dividends to their investors at all, implying that generating cash isn’t really a primary point of concern for Microsoft.

Onto the general condition of the company’s balance sheet, Microsoft’s seasoned executive team is in charge of and responsible for properly tending to just about $412 billion in terms of total assets along with around $205.7 billion in terms of total liabilities, which, for such a large organization tasked with staying ahead of the technology curve, which includes making investments in different nooks of the technology sector and perhaps taking on some debt and other financial obligations in order to finance growth, is a fantastic overall balance sheet breakdown, as its total assets outweigh the aggregate amount of its liabilities by more than twice over, offering a great amount of initial assurance that this company’s likelihood of becoming overleveraged is extraordinarily small and that it has a lot of financial firepower it can deploy in continuing to grow its various business and revenue segments.

With respect to this company’s income statement, Microsoft’s total annual revenues between 2019 and 2023 have been growing at a swift pace, standing at $125.8 billion in 2019, just north of $143 billion the following year, $168 billion in 2021, $198 billion in 2022 to its latest displayed revenue figure of just under $212 billion (reported in late June 2023).

It’s worth keeping in mind that this company is already operating off of a rather large revenue base, making it all that more impressive that it has been able to continue growing its revenues, likely due to a mixture of further penetration into new markets and sectors paired with expanding its product lines and services across the board, and with this company’s track record, we don’t see this stabilizing or moderating anytime soon, especially in the short run as its impending acquisition of Activision Blizzard will undoubtedly add to its revenues, that is, if the deal were to successfully close.

This revenue growth also taps into this company’s natural, recession resistant nature, as this is one of those companies that has largely insulated itself from external, recessionary and COVID-19-related headwinds, as it is a leader in the software space and stands to benefit from individuals, companies and other organizations shifting more of their functions online, as Microsoft has a variety of technological solutions and packages ready for you to try out.

Onto the company’s cash flow statement, both Microsoft’s net income and total cash from operations have been resoundingly positive and growing nearly every single year, with, for example, its total cash from operations ranging between (again, from 2019 and 2023) $52.1 billion (2019) and just over $89 billion (2022), hinting at the fact that this technology firm doesn’t struggle all that much to nab a healthy trailing twelve month (TTM) net profit margin.

Still, we need to verify this is the case, especially with respect to the competition’s average TTM net profit margin.

Microsoft’s stock fundamentals

Speaking of the company’s trailing twelve month net profit margin, according to the figures displayed on TD Ameritrade’s platform, Microsoft’s stands at a significant 34.15% to the industry’s respective average of 5.97%, which, from where we stand, is far from being competitive, speaking to the relative prowess and profit power of this technology behemoth.

In short, it appears as though Microsoft is a cash flow generation machine, which isn’t all that hard to surmise but it is nevertheless a pleasure to confirm.

As it relates to the company’s TTM returns on assets and investment(s), Microsoft has once again outdone itself, as, for instance, the company’s listed TTM return on investment (also displayed on TD Ameritrade’s platform) is pegged at 25.06% to the industry’s listed average of 15.93%, which certainly speaks volumes regarding the company’s proven track record of making great investments, which is evidenced by the returns it has garnered over time.

Should you buy Microsoft stock?

Microsoft is one of the most valuable companies in the world right now, and this isn’t likely going to change anytime soon.

With that, its stock (NASDAQ: MSFT) is a bit expensive right now relative to its actual, intrinsic worth (given its present price-to-earnings ratio), however, it is our viewpoint that even this seasoned technology company has more than a few tricks up its sleeve and investments to make now and later, and with its current product lines and services across the broad technology spectrum, Microsoft is seemingly set up for success moving forward and thus its shares might not be as overpriced as one might deem them to be given its potential in current and new markets.

Putting all of this information together, we think it is best to give this company’s stock (NASDAQ: MSFT) a “buy” rating for the time being.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.