Microsoft -- Quarterly Review
Having had an opportunity to run through the numbers for Microsoft 2021 Q1, I’m continually impressed by how this company is operating. Multiple streams of revenue grew at 30% or better during the quarter. They continue to grow Azure. I’m bullish on the company for Edge Computing after the VZW 5G win. The phrase ‘unprecedented expansion of our addressable market on every layer of the tech stack’ is a key takeaway. Not sure why the stock’s action after the quarter was muted, but this was a strong quarter. You could argue that at this price Microsoft’s stock is slightly undervalued as a clear pathway is emerging to well over 1 Trillion in future cash flows.
See a link for the financial questionnaire I’m using to evaluate the quarter:
For a simplified conclusion:
1-3 Year Risk Reward Outlook:
I see a 20% pull back as the maximum risk of the stock over the 3 year period. The method for arriving at this conclusion was charting out cash flows over the next 15 years at 1.2T. While I believe that these cash flows are relatively certain, they still would fall short of 1.47T enterprise valuation. However we see cash flows extending well beyond 15 years for Microsoft. That being said, market panic could become concerned by the historic values of Big Cap Tech and a pull back is a possibility.
We still see a path for the stock to have a CAGR of at least 10%. This would mean a 33% return over 3 years. We believe the premium to the risk is favorable and continue to stay long MSFT. We believe the stock is fairly valued to it’s actual worth and under valued compared to the relative market.