Monday, November 17, 2014

* Microsoft (MSFT) - Mega Cap Ripping; NOT Playing Artificial "Stock Buy-back Game"; Valuation Near Bubble Highs

Share on StockTwits

MSFT is trading $49.50, down small with IV30™ up 15.0%. The Symbol Summary is included below.

Provided by Livevol

MSFT stock is up over 30% in the last year, and unlike many of its peers, it's not playing the "stock buy back game," rather it's growing its business quickly for a such an enormous firm but... the P/E for MSFT is now at six-year highs and is approaching bubble highs... as earnings have taken a dip.

First, let's start with the one-year stock return chart.
Provided by Livevol

Nice and orderly... sort of...

And now, let's turn to the visuals.

Revenue (TTM)
This is a gorgeous chart, illustrating MSFT revenue all the way back to the year 2000 to present.  Check out the bounce in the last bar -- MSFT is growing, no lie...

Provided by Capital Market Laboratories

R&D per Dollar of Revenue vs. Revenue
If we chart R&D per dollar of revenue in the bars and then put the revenue trend in the red line, we can see that the R&D per dollar of revenue is stagnant, but since revenue is growing, total R&D expenditures are rising.

Provided by Capital Market Laboratories

Revenue (TTM) vs. Gross Margin %
One thing that is clearly trending is MSFT gross margin % shrinkage.  The firm doesn't just sell operating systems and software anymore -- hardware, cloud, product changes will change gross margin %.  this is an expected result, but it is still one to watch very closely.  Having said that, gross margin % is absurdly high for a "normal" company.

Provided by Capital Market Laboratories

R&D per Dollar of Revenue vs Gross Margin % vs. Peers
So how does MSFT's investment in R&D look relative to peers?... Well, relative to AAPL and HPQ, very high, relative to GOOGL and ORCL, very similar, relative to FB and ADBE (are those even peers?), a bit low.

Provided by Capital Market Laboratories

Price to Earnings (P/E) Trend
This is the second (gross margin % was the first) trend that does bring up some concern even though MSFTis really kicking ass right now.  The price to earnings ratio (P/E) is the highest it has been in six years and approaching pre-bubble highs.  Just watch it... that's all...

Provided by Capital Market Laboratories

Price to Earnings (P/E) vs Earnings
If we keep P/E in the bars and then put net income ("E") in the rd line, we see that the expansion in P/E is not mirrored by an increase in earnings (yet).

Provided by Capital Market Laboratories

Stock Repurchase Trend
One beautiful part of MSFT's business is that it is not playing the stock buyback game (AAPL is... so are many others).  MSFT has maintained it's stock buy back rate very consistently for three years now.

Provided by Capital Market Laboratories

Stock Repurchases Relative to Peers
How does that buy back to total assets ratio look relative to other mega caps?... it looks pretty conservative.  We can see MSFT near the bottom, with AAPL, CELG, HD, MA, NKE, V, QCOM and a bunch of others way at the top.

Provided by Capital Market Laboratories

Finally, let's turn to the option market and the Options Tab, below.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$47, $51] by the end of trading on Dec. 19th.

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

No comments:

Post a Comment