Microsoft Corporation ($MSFT$): Are Quant Investors Buying The 1629 MF Rank? - Wagner Review

Microsoft Corporation (MSFT) has a Magic Formula rank of 1629. The Magic Formula was introduced in a book written by Joel Greenblatt, entitled, “The Little Book that Beats the Market”. In this book he encourages people to take control of their own money and invest it themselves. Most people entrust their money to investment professionals but Greenblatt observes that most of them don’t beat the market. They make investing sound quite complicated but as Greenblatt explains, it’s actually quite simple. He devised a very straightforward model that can be implemented easily by everyone and has proven to beat the market significantly in the past. Greenblatt suggests purchasing 30 “good companies”: cheap stocks with a high earnings yield and a high return on capital. He touts the success of his magic formula in his book ‘The Little Book that Beats the Market’ citing that it does, in fact, beat the S&P 500 96% of the time, and has averaged a 17-year annual return of 30.8%.

Individual investors may be going to great lengths to make their hard earned money work for them in the stock market. The stock market can be a scary place for beginners with little to no experience. Studying the ins and outs of the markets can help provide a solid base for the new investor to work with. Many people will jump into the game thinking they are going to easily make large profits in the market. Although this is a possibility, many investors will learn the hard way that sustaining profits over the long-term can be a tough endeavor. Studying all the different company information can take up a lot of time and energy. Some people just don’t have the time they would like to put into stock market study.

Price Range 52 Weeks

Some of the best financial predictions are formed by using a variety of financial tools. The Price Range 52 Weeks is one of the tools that investors use to determine the lowest and highest price at which a stock has traded in the previous 52 weeks. The Price Range of Microsoft Corporation (MSFT) over the past 52 weeks is 0.963111. The 52-week range can be found in the stock’s quote summary.

Enterprise Value

Microsoft Corporation (MSFT) based out of United States and resides in the Information Technology sector, has a market cap of 898596254.4 after recently touching 132.6 on a recent bid. Microsoft Corporation (MSFT) sees an average of trading volume of 2794944.568. Microsoft Corporation (MSFT) competes in the Software industry. Watching some historical volatility numbers on shares of Microsoft Corporation (MSFT), we can see that the 12 month volatility is presently 21.0031. The 6 month volatility is 25.5401, and the 3 month is spotted at 21.056. Following volatility data can help measure how much the stock price has fluctuated over the specified time period. Although past volatility action may help project future stock volatility, it may also be vastly different when taking into account other factors that may be driving price action during the measured time period.

Altman Z

Microsoft Corporation (MSFT) currently has an Altman Z score of 5.172227. The Z-Score for predicting bankruptcy was published in 1968 by Edward I. Altman, who was assistant professor of finance at New York University at that time. It measures the financial health of a company based on a set of income and balance sheet values. The Altman Z-Score predicts the probability that a firm will go bankrupt within 2 years. In its initial test, the Altman Z-Score was found to be 72% accurate in predicting bankruptcy two years before the event. In a series of subsequent tests, the model was found to be approximately 80%–90% accurate in predicting bankruptcy one year before the event.

EBITDA/EV

EBITDA/EV stands at 0.053377.
This multiple is similar to Earnings Yield, but here we use Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as Nominator). By doing this, we can compare companies with a different capital structure and capital expenditures. This way it gives a much better idea of the value of a company compared to the popular P/E ratio. As O’Shaughnessy explaines:

” Stocks that have very high debt levels often have low PE ratios, but this does not necessarily mean that they are cheap in relation to other securities. Stocks that are highly leveraged tend to have far more volatile PE ratios than those that are not. A stock’s PE ratio is greatly affected by debt levels and tax rates, whereas EBITDA/EV is not. To compare valuations on a level playing field, you need to account for how a company is financing itself and then compare how relatively cheap or expensive it is after accounting for all balance sheet items.” – James P. O’Shaugnessy in What works on Wall Street

You can think of it as the taking all the revenue and subtracting the costs that solely go into running the business. The downside of EBITDA is that it can be abused by companies declaring as “one-off” costs things that should really be considered normal costs. We use the EBITDA of the last 12 months.

Looking at some ROIC (Return on Invested Capital) numbers, Microsoft Corporation (MSFT)’s ROIC is 1.004023. The ROIC 5 year average is 0.272328. ROIC is a profitability ratio that measures the return that an investment generates for those providing capital. ROIC helps show how efficient a firm is at turning capital into profits.

Earnings to Price (Yield), Earnings Yield, Earnings Yield Five Year

The Earnings to Price yield of Microsoft Corporation (MSFT) is 0.033946. This is calculated by taking the earnings per share and dividing it by the last closing share price. This is one of the most popular methods investors use to evaluate a company’s financial performance. Earnings Yield is calculated by taking the operating income or earnings before interest and taxes (EBIT) and dividing it by the Enterprise Value of the company. The Earnings Yield for Microsoft Corporation (MSFT) is 0.042142. Earnings Yield helps investors measure the return on investment for a given company. Similarly, the Earnings Yield Five Year Average is the five year average operating income or EBIT divided by the current enterprise value. The Earnings Yield Five Year average for Microsoft Corporation (MSFT) is 0.027805.

Active investors are constantly weighing risk and return when trading in the stock market. Every investor has to evaluate their risk appetite at some point. The amount of risk an investor is willing to take on can have a large impact on expected future returns. Some people may be much more comfortable with riskier investments than others. This can greatly vary from one person to the next. Once the individual investor is comfortable with the amount of money on the table, they should be able to spend their energies focused on finding a winning strategy. Finding a winning strategy may involve many different aspects of stock research. Following a plan may help investors plow through downturns in the markets, and being able to change the plan when things aren’t working can also be a help to longer-term portfolio health.

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