Offshore
Photo
โ Dimitry Nakhla | Babylon Capitalยฎ
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 29.56x
โข5-Year Mean: 30.90x
โขNTM FCF Yield: 2.51%
โข5-Year Mean: 2.95%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~5% MORE in earnings per share & ~15% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 22.7%
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
RETURN ON EQUITYโ
โข2019: 42.4%
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $MSFT has to grow earnings at a 14.78% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.78%) required growth rate:
2025E: $13.18 (11.7% YoY) *FY Jun
2026E: $15.04 (14.1% YoY)
2027E: $17.69 (17.6% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but letโs assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08๐ต โฆ ~16.3% CAGR
30x P/E: $530.70๐ต โฆ ~13.2% CAGR
29x P/E: $513.01๐ต โฆ ~11.5% CAGR
28x P/E: $495.32๐ต โฆ ~9.9% CAGR
As you can see, weโd have to assume a 29x multiple for $MSFT to have attractive return potential
At 28x earnings $MSFT has decent CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldnโt want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403๐ต while relying on 28x - 29x
My next tranche of adds would likely be closer to $375๐ต (~7% below todayโs price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ[...]
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 29.56x
โข5-Year Mean: 30.90x
โขNTM FCF Yield: 2.51%
โข5-Year Mean: 2.95%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~5% MORE in earnings per share & ~15% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 22.7%
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
RETURN ON EQUITYโ
โข2019: 42.4%
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $MSFT has to grow earnings at a 14.78% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.78%) required growth rate:
2025E: $13.18 (11.7% YoY) *FY Jun
2026E: $15.04 (14.1% YoY)
2027E: $17.69 (17.6% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but letโs assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08๐ต โฆ ~16.3% CAGR
30x P/E: $530.70๐ต โฆ ~13.2% CAGR
29x P/E: $513.01๐ต โฆ ~11.5% CAGR
28x P/E: $495.32๐ต โฆ ~9.9% CAGR
As you can see, weโd have to assume a 29x multiple for $MSFT to have attractive return potential
At 28x earnings $MSFT has decent CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldnโt want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403๐ต while relying on 28x - 29x
My next tranche of adds would likely be closer to $375๐ต (~7% below todayโs price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ[...]
Offshore
โ Dimitry Nakhla | Babylon Capitalยฎ A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ โขNTM P/E Ratio: 29.56x โข5-Year Mean: 30.90x โขNTM FCF Yield: 2.51% โข5-Year Mean: 2.95% As you can see, $MSFT appears to be trading near fair value Going forward, investors canโฆ
๐๐๐๐ฎ๐ซ๐๐๐ฒ.
tweet
tweet
Offshore
Video
โ Startup Archive
Elon Musk: โAny new technology is expensive when it starts outโ
Charlie Rose asks Elon why Tesla started with the expensive Roadster. Elon replies:
โAny new technology is expensive when it starts outโฆ Because the first thing that engineers are trying to do is make it work. And then when you make it work, you optimize, and you optimize, and you optimize.โ
He points out that computers, cell phones, and gasoline cars all followed this cycle. Cars used to be toys for rich people until they were made affordable by Henry Ford.
โAnd then you combine that with the fact that weโre just a little startup. Thereโs just no way that we could afford a billion dollars to make a giant car plant that would make hundreds of thousands of cars a year. Because thatโs the kind of volume you have to get to to make cheap carsโฆ So we have both a volume problem and a new technology problem. You have to reach scale and you have to work the bugs out of the system. And you want to make your mistakes at a small scale.โ
tweet
Elon Musk: โAny new technology is expensive when it starts outโ
Charlie Rose asks Elon why Tesla started with the expensive Roadster. Elon replies:
โAny new technology is expensive when it starts outโฆ Because the first thing that engineers are trying to do is make it work. And then when you make it work, you optimize, and you optimize, and you optimize.โ
He points out that computers, cell phones, and gasoline cars all followed this cycle. Cars used to be toys for rich people until they were made affordable by Henry Ford.
โAnd then you combine that with the fact that weโre just a little startup. Thereโs just no way that we could afford a billion dollars to make a giant car plant that would make hundreds of thousands of cars a year. Because thatโs the kind of volume you have to get to to make cheap carsโฆ So we have both a volume problem and a new technology problem. You have to reach scale and you have to work the bugs out of the system. And you want to make your mistakes at a small scale.โ
tweet
Offshore
Photo
โ Quiver Quantitative
I built a trading bot that buys stock in companies that are ramping up lobbying spending.
The portfolio has risen 39% since being released on Autopilot in April.
Politicians seem to be profitable investments: https://t.co/TcAIYzzCa0
tweet
I built a trading bot that buys stock in companies that are ramping up lobbying spending.
The portfolio has risen 39% since being released on Autopilot in April.
Politicians seem to be profitable investments: https://t.co/TcAIYzzCa0
tweet
Offshore
Photo
โ Finding Compounders
Must Read
Why stocks beat gold and bonds
By Warren Buffett https://t.co/tJlxL5kYkE
tweet
Must Read
Why stocks beat gold and bonds
By Warren Buffett https://t.co/tJlxL5kYkE
tweet
Offshore
Photo
โ Stock Analysis Compilation
Brown Advisory on HDFC Bank $HDFCB IN
Thesis: HDFC Bank is well-positioned for long-term growth despite recent underperformance due to its merger, with strong fundamentals and effective management, especially in the mortgage sector.
(Extract from their Q4 letter) https://t.co/HcdfOWtl9v
tweet
Brown Advisory on HDFC Bank $HDFCB IN
Thesis: HDFC Bank is well-positioned for long-term growth despite recent underperformance due to its merger, with strong fundamentals and effective management, especially in the mortgage sector.
(Extract from their Q4 letter) https://t.co/HcdfOWtl9v
tweet
Offshore
Photo
โ Finding Compounders
Iโve gained a lot of knowledge from this YouTube channel https://t.co/u6JejPBvDI
tweet
Iโve gained a lot of knowledge from this YouTube channel https://t.co/u6JejPBvDI
tweet