Yesterday I pointed out that when there is nothing going on the market it might be a good idea to have a look on companies out of my coverage. Well, truth to tell I prefer investing in Aristocrats as I believe in their strong and sustainable financial position. On the other hand when looking on companies like Google or Microsoft risk is also not so high… or is it? Well there are still many tech companies which are below 2001 levels like Cisco, but most of them are growing. With diversified portfolio some tech companies might improve risk to return. Once I was looking at Facebook and Amazon. Apple is in my coverage, so let’s complete this spectrum by Microsoft (today) and Google (sorry… Alphabet).

Everyone knows more or less what Microsoft is doing. Let’s look in details on operating segments:


To put it briefly:

Productivity and Business Processes – Office and some business apps

Intelligent Cloud – server products and cloud services, e.g. Microsoft Azure

More Personal Computing – Windows, Xbox, devices.

We can see that mainly More Personal Computing segment is growing.


To make financial context:

Market cap $500b

Net cash $30b

Dividend yield 2.4%, increasing dividends since 2004, so not long, but long enough to think about MSTF as a stable business. Historically company was paying higher yield (share price was lower), so current 2.4% is nothing special.


On the other hand if you add share buyback activity, which is comparable/higher in amount to dividend paid we can see that company is giving back to shareholders around 5% annually! That’s good.

Also if we look on cash flow, we can see it is high and stable.


Consensus is quite optimistic:


But valuation is not low with P/E17 > 26 and EV/EBITDA17 = 12.9.


Summing up, Microsoft is great and well-managed company with awesome prospects for future. Current valuation for me is neutral. From one hand dividend + buyback is attractive, but on the other hand P/E is very high. Consensus is quite optimistic, maybe too optimistic. I am considering buying as I see no other investment ideas, but I think that finally I will come to conclusion, that I should never buy at all-time high…

Disclaimer: MSTF – no position