Analysis of Microsoft

Company: Microsoft

Business: Operating system, software (cash cow is office) and Xbox. Over the years they have made several attempt to establish themselves within manufacturing but as of yet the only very clear success was the Xbox but I am sure more things will come in the near future.

Active: They are active world wide as all the American giants are.

P/E: 15.6


The P/E of Microsoft is surprisingly high with its 15.6. I would have expected something much lower based on that the stock price has fluctuated for the last 10 years between 18 and 24. I haven´t dug into those data but I just assume that the earnings today is much higher then it was 10 years ago. The P/B value is also not looking that good with 3.6 so from Grahams formula is definitely not a buy. I´m impressed that they get out 21% on the E/S but the costs for replicating software once made is zero so earnings can be kept high. The book to debt value is very ok. They can afford some tough years. Their growth of 4% is low but fully acceptable. If we look at Lynch and Graham then a fair P/E would be around 15 or 16 which it is also at today. The stock has a fair value on the market. They are spending a lot of money on R&D which I find excellent and I also find it ok that it is 64% of earnings. The stock yield is fully acceptable with 2.8% which represents 44% of profit. It is a bit too much but with that massive investment in research that they are already doing then I find it fine.
They use a broken half year starting in July and in their final quarter they had excellent earnings with 6.4 billion $.

Conclusion: Microsoft is a stable, solid company that will have good earnings also in the future. Currently I do not see it as a buy but if it drops down to below $18 or a P/E around 10 then I would consider buying Microsoft.