Sonki,
These are a few intriging numbers on MSFT. MSFT is actually getting cheaper not more expensive.
5 Yr Free cash flow rate = 57.3%
3 Yr Free cash flow rate = 53.9%
Current price to free cash flow ratio = 25
1 yr ago price to free cash flow ratio = 40.6
The paragraphs below are from WORTH magazine.
96/12/10-Free Cash Flow (Intro)
Our latest selection process is based on the cash flow statement.
This week, we begin a new series of screens based on free cash flow.
In previous screens, we have selected companies based
on traditional, accounting measures, the most important
of which is earnings. However, the earnings number has
some serious shortcomings as a measure of corporate
performance and value.
It is possible for a company to show strong earnings
even while cash is being shoveled out the door.
It is possible for a company to show strong earnings
even while cash is being shoveled out the door. It is
likewise possible to show low or negative earnings
while cash is piling up. Ultimately, cash is what really
matters to the investor. At a minimum, earnings should
always be checked against cash. When one number is
significantly higher than the other, investors should
look closely to find a reason why.
In this series of screens, we will go farther, and base our
entire selection process on the cash flow statement,
rather than the income statement. Stay tuned.
Worth OnLine would like to thank The American
Association of Individual Investors for providing data
for "Stock Screen of the Week."
97/01/14--Free Cash Flow (FINAL)
Most investors ignore the cash flow numbers. This may be your lucky day.
Here is something worth waiting for. The ultimate cash
flow screen. The companies below have demonstrated a
solid history of cash flow growth. They have better
cash flow than most of the firms in their industries.
Why should a company that is a gushing spring of cash be cheap? Go figure.
But their stock prices (measured on a price-to-cash-flow basis) are lower than those of their cash-poor competitors. Moreover, their price-to-cash-flow ratios have actually come down in the past year. These companies are better and cheaper than they were a year ago--so say nothing of being better and cheaper than almost everything else out there.
Would you buy a bag of cash for $50 without first inspecting it?
Well, that's a little counter-intuitive, isn't it? Why should a company that is a gushing spring of cash be cheap? Go figure. Well, actually, someone has. Quite a few someones.
A list of academics that stretches from your carpal tunnel to your rotator cuff have scratched their occipital ridges over this puzzle. Their broad conclusion--even though most companies publish cash flow statements, most people don't bother to read them. Just imagine.
So here's a new model for investor behavior: A guy stops cars at the entrance to the tunnel and asks each driver if he wants to buy a bag of cash for fifty bucks. Most drivers hand over their fifty without looking in the bag first. They're the investors who don't read the cash flow statements. A few drivers check the bag. Sometimes it's full of money, sometimes it's full of scrap paper.
A wide mix of companies passed this final filter.
Which set of drivers comes out ahead in the long run?
Read the cash flow statements. And read this screen, carefully. A wide mix of companies passed this filter. Hot shot high tech firms like Adobe (EXCH: TICK) and Microsoft (NYSE: MSFT) and low tech old timers like Tootsie Roll (EXCH: TICK). No problem, mon. We'll take
cash anyway we can get it.
I think that you will find the series of links at the address below very enlightening for MSFT and other stocks as well.
worth.com
In my opinion, MSFT is a buy. I will try and post a URL to another article that discusses how MSFT and other software companies handle deferred earninings tomorrow if I can find it.
Best of luck,
Brian Malloy |
