Earnings season is officially here. As usual, there have already been epic sales and price hikes on well-known names.
However, long-term investors know that the best way to view a quarterly earnings report is to place it in the context of an investment thesis rather than the market’s knee-jerk reaction to short-term results. That’s exactly what these Motley Fool contributors are talking about Microsoft (NASDAQ:MSFT), Pfizer (NYSE:PFE), NextEra Energy (NYSE: NO), Home deposit (NYSE:HD)And Fiverr International (NYSE:FVRR). Here’s why the five companies that have what it takes to be solid long-term investments and are worth buying in May.
Microsoft shows no signs of slowing down
Daniel Foelber (Microsoft): Microsoft continues to achieve impeccable financial results. If artificial intelligence constitutes a key driver of its growth, the sustained expansion of its cloud business propelled the company’s results to new heights.
Ultimately, it doesn’t matter which segment contributes the most to growth, as long as overall performance improves. However, Microsoft continues to increase sales and margins across all its segments. This double is a dream come true for investors because it shows that Microsoft is becoming even more of a cash cow by generating more operating profit for every dollar of sales.
In the last quarter, Microsoft grew its Intelligent Cloud revenue by 21% year over year and increased the segment’s operating margin to an incredibly efficient 46.8%. Here’s a look at how each of the company’s three segments performed.
|
Metric |
Q3 FY2023 |
Q3 FY2024 |
Change |
|---|---|---|---|
|
Productivity and business process revenue |
$17.52 billion |
$19.57 billion |
11.7% |
|
Productivity and Business Processes Operational Results |
$8.64 billion |
$10.14 billion |
17.4% |
|
Operating productivity and business process margin |
49.3% |
51.8% |
25 basis points |
|
Intelligent Cloud Revenue |
$22.08 billion |
$26.71 billion |
21% |
|
Intelligent Cloud Operating Profit |
$9.48 billion |
$12.51 billion |
32% |
|
Intelligent Cloud Operating Margin |
42.9% |
46.8% |
39 basis points |
|
More personal computing income |
$13.26 billion |
$15.58 billion |
17.5% |
|
More operating revenue for personal computing |
$4.24 billion |
$4.93 billion |
16.3% |
|
Increased operational margin for personal computing |
32% |
31.6% |
(4 basis points) |
Data source: Microsoft.
Microsoft’s high-margin operations give it enough excess cash to reinvest in the business, make acquisitions, take risks and bolster its capital return program. During the most recent quarter, it repurchased $4.21 billion in common stock and paid $5.57 billion in dividends, compared to $4 billion in repurchases and the same dividend expense the previous quarter.
Microsoft continues to be as close to a perfect company as possible. The only problem is that it is notoriously successful, which is why it is the most valuable company in the world and has a price-to-earnings ratio of 36.8. It’s not cheap, but it’s arguably a fair price for a company that’s growing its top and bottom line at the rate Microsoft is, especially when you take into account all of its other…
