Armentum's financial model had been pointing us in the direction of Microsoft for several months. We kept getting an intrinsic value between $46 to $65, and it was recently trading in the low $40s. We executed a buy, and added MSFT to our hedge fund. So far it has been a great decision as the stock jumped over 10% only days after we purchased due to strong quarterly results. To see the financial model in action take a look at the youtube link below.
Lets take a brief look at the numbers driving the valuation and why our model was screaming BUY BUY BUY! Below is a snapshot of condensed information Armentum's model grabbed in seconds for our analysis.
|Historical Analysis||10yr Forec.||TTM|
|Income Statement||Revenue growth||7.63%||6.50%|
|SG&A % Revenue||25.01%||22.42%|
|R&D % of Revenue||13.27%||12.74%|
|Other Opex % of Rev.||0.81%||1.79%|
|Interest Income %||0.95%||0.67%|
|Interest Expense %||1.71%||1.99%|
|Other Income (Expense)||0.37%||0.21%|
|Adj. Profit Margin||26.42%||21.10%|
|Quality of Income (EBIT)||0.78||0.95|
|Average Tax Rate||23.12%||25.48%|
|Preferred Dividend Rate||0.00%||0.00%|
|Depr. % of PP&E||14.17%||14.92%|
|CapEx % of PP&E||13.89%||13.21%|
|Other LTA % Revenue||17.72%||16.06%|
|Debt Coverage||Interest xEBIT||63.52||37.97|
|Debt Service xEBIT||41.70||5.42|
|Cash Ratio (Days)||618.72||854.89|
|AR Days of Sale||65.31||47.86|
|Other Current Assets||7.80%||8.50%|
|AP Days of Cost||110.15||100.57|
|Payout||Div. Payout (Book)||41.11%||49.08%|
|Buyback Ratio (Book)||40.51%||41.44%|
|Total Net Payout||81.63%||90.52%|
|Historical Return||Capital Gain||10.67%||1.87%|
|Div. Yield on Cost||4.08%||2.47%|
|Total Yield (OTCPK:CAGR)||18.80%||7.54%|
|Return on Capital||ROA (EBITDA)||23.43%||19.34%|
|ROE Adj. common||59.07%||20.68%|
Take a look at the numbers and let us know your thoughts. We have adjusted the 10 year forecast, but did not include our exact forecast in the numbers above. Good luck investing everyone! For any valuation needs, please contact Armentum.
Disclosure: The author is long MSFT.