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Microsoft Stock Looks Cheap to Value Investors
Based on its huge free cash flow margins, MSFT stock could be worth $450, over 36% higher.
Microsoft (MSFT) stock is attractive to value investors, given its huge free cash flow (FCF).
For example, in its latest quarter ending June 30, its adjusted FCF rose to $21 billion. That represents 37.4% of its sales of $56.1 billion for the quarter.
Free cash flow is the residual cash that a company generates after covering all its cash expenses, including things like capital expenditures and working capital needs. The latter two items don’t even show up on the income statement, so FCF is quite a unique and useful measure of cash profitability to investors.
Moreover, FCF allows a company to pay dividends, buy back stock, and pay down debt without having to finance these measures.
And given all the GAAP-required expenses and other non-cash deductions that have proliferated in the past 10 years, this metric cuts through all the nonsense.
In this case, essentially over 37% of every sales dollar generated goes straight to the company’s bank coffers.
That is even higher than Apple’s 29.7% FCF margins, as I explained in my recent…
