* Note: Prices are in Million (M) USD.
Description:
Microsoft Corporation is an American multinational technology company which produces computer software, consumer electronics, personal computers, and related services. Its best known software products are the Microsoft Windows line of operating systems, the Microsoft Office suite, and the Internet Explorer and Edge web browsers. Its flagship hardware products are the Xbox video game consoles and the Microsoft Surface lineup of touchscreen personal computers. Microsoft ranked No. 21 in the 2020 Fortune 500 rankings of the largest United States corporations by total revenue; it was the world's largest software maker by revenue as of 2016. It is considered one of the Big Five companies in the U.S. information technology industry, along with Google, Apple, Amazon, and Facebook.
These criteria used Company's Cash, EBITDA and Debt balance to determines its fair value:
Cash : $30,242 M
Debt : $43,151 M
EBITDA : $160,165 M
Net Debt (Debt - Cash): $12,909 M
Since Net Debt is covered by EBITDA within 1 year, 3 points assigned.
This criteria used industry in which company operates:
Sector: Software - infrastructure
Industry: Technology
Based on industry, 5 points assigned.
This criteria used Company's Price To Earning (P/E) Ratio to determines its fair value:
Forward PE Ratio: 31.44
Since Forward PE Ratio is between 25 - 35, 1 point assigned.
This criteria used Company's ability to convert Sales into free cash flow to determine fair value:
Using last 20 overlapping fiscal years (max 20).Average Free Cash Flow: $35,630 M
Average Revenue: $117,537 M
Revenue Converted To Free Cash Flow (%): 30.3%
Since Free Cash Flow (FCF) to Revenue percentage is greater than 25, 5 points assigned.
This criteria used company's growth potential to calculate its fair value:
Latest Revenue (2025-06-30): $281,724 M
Revenue 5 Years Ago (2020-06-30): $143,015 M
Total Growth over 5 Years: 97.0%
5-Year Revenue CAGR (Historical): 14.5%
Forward 5-Year CAGR (Tapered): 11.6%
Since historical Revenue CAGR is between 10 - 15, 3 points assigned.
This criteria used Company's ability to buy back its own share:
Latest Share Count (2025-06-30): $7,465 M
Share Count 5 Years Ago (2021-06-30): $7,608 M
Company is buying back its own shares, 3 points assigned.
This criteria used Company's dividend payout ratio to determine its fair value:
Next Year Earnings Per Share (EPS): $17.71
Trailing 12-Month Earnings Per Share (EPS): $15.24
Average Earnings Per Share (EPS): $16.48
Dividend Per Share (DPS): $3
Payout Ratio: 20%
Dividend Yield: 1%
Since company Payout Ratio is less than 50, 2 points assigned.
Since Dividend Yield is less than 1, 0 point assigned.
This criteria used Company's Return On Equity (ROE%) to determine its fair value:
Using last 20 valid ROE years (max 20).Average ROE: 34.0%
Since Average ROE is greater than 20, 5 points assigned.
This criteria used Company's current price to its 52 week low price to determines its fair value:
Current Price: $518
52-Week Low: $344
Threshold Price (15% Above 52-Week Low): $395
Since Current price is not within 15% threshold, 0 point assigned.
This criteria used Company's Market Cap to determines its fair value:
Market Capitalization: $3,790,173 M
Since Market Cap is greater than 1 Trillion, 5 points assigned.
% Exposure to Total Portfolio
Based on the market cap, we recommend do not exceed 5% exposure of Total Portfolio.
Warren Buffett's Owners' Earnings:
Owners' Earnings (FCF/Share) (TTM ending 2025-06-30): $9.59
Owners' Earnings (FCF/Share, latest positive annual) (2025-06-30): $9.59
Note: Many fast-growing companies reinvest heavily, so Owners' Earnings may appear low.
Consider other factors in your valuation.
Value-Trade has assigned 32 points to above Microsoft Corporation (MSFT) stock.
Last 20 Years Avg PE
20.89, Fair Value PE
25, Industry Based PE
20, Growth Based PE
15, RCFC Based PE
30.31, ROE Based PE
34.02, Risk-Free Anchored PE (25% MoS)
17.61. Based on these 7 values, average assigned is
23.26. Value-Trades has assined P/E value
23.26. An average (Current Year EPS + Next Year EPS) earning per share is
$16.475.
Fair value using multiple P/Es (blended): $383.22 (PE 23.26 × EPS $16.48)
So the Final Fair Value is: $383.22
Understanding the Value-Trades P/E Blend (click to expand)
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What goes into the blended P/E?
- 20-Year Avg P/E — Long-run market baseline; conservative anchor.
- Fair Value P/E — Score-based (cash, debt, sector, etc.).
- Industry P/E — Peer group norm.
- Growth-Based P/E — Uses tapered growth rates, floored at 15.
- RCFC-Based P/E — Maps cash conversion efficiency.
- ROE-Based P/E — Higher ROE supports higher multiples.
- Risk-Free Anchored P/E — Macro floor tied to 10y yield w/ MoS.
How it works
- Extreme values are clamped/filtered (IQR method).
- Anchors (20y avg, RCFC/ROE, risk-free) are always kept if valid.
- Final fair value = min(Blended PE × EPS, Avg PE × EPS).
P/E Reference Summary
Using EPS: $16.48
Using Owners' Earnings (Latest FCF/Share): $9.59
Note: Many highly growing companies reinvest heavily back into the business,
so their Owners' Earnings may appear very low. In such cases, other criteria should
be considered to assess the company’s true worth.
| Source |
P/E Ratio |
Implied Fair Value |
| Market (1 Yr Ago) | 35.5 | $584.86 |
| 20 Yrs Avg-PE | 20.89 | $344.16 |
| Value-Trades Assigned | 23.26 | $383.21 |
| Owners' Earnings × 20 Yrs Avg-PE | 20.89 | $200.34 |
