Amit Chokshi, CFA
Hedge fund manager, long/short equity, bonds

Is Microsoft The Ultimate Value Trap?

Low Risk Short

I think Microsoft (NASDAQ:MSFT) is transforming into a value trap in the same manner Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), Yahoo (NASDAQ:YHOO), and Nokia (NYSE:NOK) have. On the surface (no pun intended), MSFT looks like a value investor's dream with its solid balance sheet, attractive capital return metrics, established moats, and seemingly cheap valuation at <10x forward earnings and ~6.0x EV/EBITDA. However, with a market cap of $225B and significant coverage by the media and sellside community, this is all known and has been known for years, yet the stock has done nothing.

The reason could be because the market has observed deteriorating fundamentals in the form...

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