Microsoft (NASDAQ: MSFT) finds itself at a crossroads. In the realm of market capitalization, it has soared, almost tripling in the past three years to join the elite $3 trillion club with only Apple as its cohort. Yet, recent market performance has shown a chink in its armor. A slump since reaching an all-time high in July has seen Microsoft’s stock stumble, down over 12% by Sept. 5, trailing the S&P 500 despite a strong start to the year.
The Yardstick of Profitability
Microsoft continues to impress with its financial prowess. The company posted a 15% year-over-year increase in revenue and operating income in its latest quarter, exceeding analyst expectations. With an earnings per share (EPS) of $2.95, more than double the figure from five years ago, Microsoft’s profitability trajectory remains on a steady incline.
MSFT EPS Diluted (Quarterly) data by YCharts
The growth in Microsoft’s EPS, coupled with minimal decrease in outstanding shares, underscores the company’s ability to bolster earnings without resorting to share buybacks.
Azure in the Sky
The azure skies above Microsoft were not as devoid of clouds as expected with a 29% year-over-year increase in revenue from “Azure and other cloud services.” While some see this as a slowdown, it’s crucial to remember that Rome wasn’t built in a day. Microsoft’s increased capital expenditures, especially in bolstering its cloud business and fortifying its AI infrastructure, paint a picture of a company gearing up for a marathon.
MSFT Capital Expenditures (Annual) data by YCharts
Azure, with a 25% market share, is already nipping at the heels of the dominant AWS, indicating that Microsoft’s cloud ambitions are no flight of fancy.
Betting on Growth with a Dividend Twist
Surprisingly, Microsoft’s stature as a dividend stock stands out. While not eye-popping with a forward dividend yield just above 0.7%, Microsoft’s regular dividend increments paint a promising picture. The company’s total returns, outstripping stock price appreciation by over 150% in the last decade, validate the role of dividends in bolstering overall returns.
MSFT data by YCharts
Microsoft’s dividend, while not a silver bullet, adds a pleasant melody to its growth symphony.
A Premium Worth Paying For
Microsoft comes at a premium, reflected in its forward price-to-earnings (P/E) ratio of 31. While some may balk at the high price tag, quality often commands a premium. The company’s robust fundamentals and cloud expansion offer tantalizing growth prospects, urging investors to see beyond the immediate valuation.
The Final Verdict
As investors ponder the merits of investing in Microsoft, one thing remains clear: potential is afoot. With a track record of profitability and a strategic eye on future technologies driving growth, Microsoft presents an alluring case for those willing to pay the premium and play the long game in the ever-evolving tech landscape.
Should you invest $1,000 in Microsoft right now?
Motley Fool Stock Advisor dishes out insight on the best moves in the stock market. While Microsoft might not be their top pick, historical trends show that high-fliers often surprise, with untold riches awaiting visionary investors.
