Microsoft (MSFT, Financial) has made an intelligent move by diversifying its product base. The company is now targeting several markets such as the cloud and servers to propel its growth, and the good news is that its products are doing well.
Smart moves
For example, since its launch, the Xbox one has sold over 5 million units with impressive user engagement of spending nearly 5 hours per day on their console. Microsoft plans to continue to extend this unique entertainment value proposition of Xbox One. The sales mix moved to its second generation for the quarter and Pro devices which had a positive impact on the gross margin as well.
Although Microsoft’s strength could be seen in the products like Office, Windows and the Server business which remain strong performers, going forward but it would be more interesting to see how it plans to attack new growth areas like the Cloud. And with Apple (AAPL) gaining popularity in enterprise, Microsoft needs to quickly implement a counter strategy.
In addition, Microsoft is quite confident about enhancing its device capabilities after the successful completion of the Nokia (NOK) acquisition.
A look at some numbers
The trailing P/E and forward P/E ratios of 15.64 and 14.55 represent the cheap valuation of Microsoft's stock and improving company operations. The PEG ratio of 2.28 shows slow growth, which is poor in comparison to the industry’s average of 1.95. Moreover, its competitors like Apple and Oracle Corporation (ORCL) have better growth ratios of 0.93 and 1.37 respectively. The profit margin is stable at 26.91%. The revenue per share and diluted EPS of 10.01 and 2.67 respectively depicts only marginal return for the investors.
However, the earnings are better than the industry’s average of 1.42. Still, the competitors Apple and Google have greater earnings of 5.96 and 19.09, respectively. The quarterly revenue growth and quarterly earnings growth of -0.40% and -6.50%, respectively, are unsatisfactory and indicates decline in earnings. However, Apple, Google and Oracle have yearly growths of 5%, 19% and, 3% respectively. And, the industry average is also robust at 50%. The current ratio is stable at 3.22. Therefore, investors can invest into Microsoft looking at the satisfactory CAGR for the next 5 years per annum of 6.78% which is quite low than the industry’s average of 19.22%. However, its competitors look better.
