Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Microsoft - Armentum's Financial Model Screamed Buy, So We Did

|Includes: Microsoft Corporation (MSFT)

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%
Gross Margin 72.21% 65.12%
SG&A % Revenue 25.01% 22.42%
R&D % of Revenue 13.27% 12.74%
Other Opex % of Rev. 0.81% 1.79%
EBITDA Margin 37.87% 35.61%
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%
Balance Sheet Assets/Equity 1.90 1.96
Assets/NonCurr. Debt 5.18 3.91
LTD/Equity 0.39 0.50
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
Debt xEBIT 1.20 0.75
Liquidity Cash Turnover 1.18 0.99
PP&E Turnover 2.97 2.28
Current Ratio 2.26 2.51
Cash Ratio (Days) 618.72 854.89
AR Days of Sale 65.31 47.86
Inventory Turnover 8.32 9.51
Other Current Assets 7.80% 8.50%
AP Days of Cost 110.15 100.57
Asset Turnover 0.60 0.54
Payout Div. Payout (Book) 41.11% 49.08%
Buyback Ratio (Book) 40.51% 41.44%
Preferred Dividends 0.00% 0.00%
Total Net Payout 81.63% 90.52%
Historical Return Capital Gain 10.67% 1.87%
Div. Yield on Cost 4.08% 2.47%
Net Buybacks 4.06% 3.20%
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.

www.youtube.com/watch?v=_hvfnEQ8o6M

Disclosure: The author is long MSFT.