Microsoft Corp (MSFT) stock analysis

P/E below its 5-year median

Microsoft's P/E of 27.2 is below its own 5-year median of 34.0.

P/E below the industry

Microsoft's P/E of 27.2 is below the Computer Programming, Data Processing, and Other Computer Related Services median of 27.6.

EV/EBITDA below its 5-year median

Microsoft's EV/EBITDA of 23.5 is below its 5-year median of 27.0.

P/B above the industry

Microsoft's price-to-book of 8.23 is above the Computer Programming, Data Processing, and Other Computer Related Services median of 3.32.

Trading below fair value

The share price of $521.13 is below our fair value estimate of $552.04.

Margin of safety under 20%

The price is 5.6% below fair value, less than the 20% cushion we look for.

Revenue growing 10%+ a year

Revenue grew 16.1% a year over the last three fiscal years.

EPS growing 10%+ a year

Diluted EPS grew 22.9% a year over the last three fiscal years.

Earnings growth accelerating

Net income grew 36.0% over the last twelve months, against a 5-year average of 16.9% a year.

Growing faster than the industry

Revenue grew 17.9% over the last twelve months; the Computer Programming, Data Processing, and Other Computer Related Services median is 9.6%.

Company guidance

No outlook found in earnings releases from the last twelve months.

Gross margin slipping

Gross margin was 67.7% over the last twelve months, against 68.8% a year earlier.

Return on equity over 15%

Return on equity was 34.2% over the last twelve months and averaged 38.1% over five years.

Return on capital over 10%

Return on invested capital was 35.2%, above the 10% that usually covers the cost of capital.

Return on equity above the industry

Microsoft's return on equity of 34.2% is above the Computer Programming, Data Processing, and Other Computer Related Services median of -1.2%.

Earnings grew over 5 years

Net income grew 16.9% a year on average over the last five fiscal years.

Net margin above its 5-year average

Net margin was 41.2% over the last twelve months, against a 5-year average of 36.6%.

Net margin above the industry

Microsoft's net margin of 41.2% is above the Computer Programming, Data Processing, and Other Computer Related Services median of -4.8%.

Low debt

Debt is 7.5% of shareholders' equity, under the 40% we consider low.

Debt falling against equity

Debt to equity fell from 41.0% five years ago to 7.5%.

Debt covered by cash flow

Operating cash flow over the last twelve months equals 552% of total debt.

Interest well covered

Operating income covers interest expense 50.6 times.

Short-term assets cover short-term debts

Current assets are 1.22 times current liabilities.

Low bankruptcy risk

The Altman Z-score is 9.34; above 3 is the safe zone and below 1.8 the distress zone.

Pays a dividend

Microsoft paid dividends worth 0.7% of the share price over the last twelve months.

Yield below Treasuries

The 0.7% yield is below the 4.4% on a 1-year Treasury.

Yield below the top quarter

The top quarter of US dividend payers yield 3.8% or more; Microsoft yields 0.7%.

Dividend not cut

The dividend per share has not fallen by more than 10% in any of the last 10 fiscal years.

Covered by earnings

Dividends take 19.0% of net income.

Covered by free cash flow

Dividends take 45.1% of free cash flow.