Tech2000, JFD and thread -
One of the posters on another SI thread sent me this analysis. I thought that I would post it here and see what comments or criticisms it would attract as I can't believe it is that simple and the poster is a serious contributor and I would like to have the appropriate ammunition to challenge him:-
Let us do a cash flow series.
Start off with year one. You just bought MSFT for $430 Billion so enter a negative $430 Billion amount under year 1. Now I am going to give you a wild assumption that MSFT's profit margin is 100%. So the return on investment after the first year is $17,217,000,000 (current years revenue). Now I am going to give you another wild assumption that MSFT will grow at 30% per annum, year after year. So under year 2, multiply $17,217,000,000 by 130%. Blow that out for 10 years.
Do you see it now?
It will take over 8 years before you will recapture your original investment of $430 billion. At which time, MSFT would have to have revenue of $108 billion in order for the model to be true.
Of course, MSFT's profit margin is not 100%. I am using this ridiculously generous assumption to demonstrate how grossly over valued this stock is. I am also using this assumption because the blind bulls will tell you how profitable MSFT is. My counter is that no company has ever had earnings higher than revenue.
The blind bulls will also tell you that MSFT has tons of cash, something like $20 billion. Yes, that is a lot of cash to me but it is less than 5% of the market cap.
Best regards,
L |
