In our July report on Microsoft Corporation (MSFT), we were amazed at Microsoft’s mediocre stock performance since the dot-com implosion. Despite the fact that MSFT avoided the worst of the dot-com implosion and despite the fact Mr. Softy’s EPS grew nearly fourfold since the end of its 1999 fiscal year (representing a CAGR of 11%), Microsoft’s stock has registered a negative total return of 17% since the end of its 1999 fiscal year and 37.5% since its December 1999 split-adjusted all-time high of $60.
That price, at the time, represented a PE of over 70 times earnings. The company’s stock is so cheap on a PE basis, it is trading at less than 10X adjusted FY 2013 earnings and now pays a $.23 quarterly dividend (3.21% yield). We were disappointed that the recent $.03 increase was less than the $.04 increase issued last year. Unfortunately for Microsoft, its mediocre stock performance is in-line with its business performance.
Microsoft’s performance continues to be mixed bag of success, weakness and ugly, outright flops. Good news has come primarily from its Server and Tools Division and its Microsoft Business Division. Weakness has come from its Windows and Windows Live Division and Entertainment and Devices Division. And ugly, outright flops are proudly represented by Microsoft and Nokia (NOK) flubbing the launch of the Lumia smartphones that are running on Windows Phone 8. At least MSFT did not write down any goodwill and intangible assets from any deals from hell since its $6.2B write-down for its aQuantive disasterpiece.
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