When you look at Microsoft over the past ten years, the reason why it has managed to grow profits per share at a high double-digit rate is because it dramatically increased the repeatability of its sales. A decade ago, much of the profits were derived from the sale of Microsoft Office which was an event that required businesses to make a purchase every 2-3 years. Nowadays, Microsoft generates a substantial portion of its revenues through its cloud/data storage services where corporate America pays Microsoft a monthly fee for providing exceptional data services.
The dramatic increase in repeat business has been an important component in explaining why Microsoft has been able to deliver such strong returns to its shareholders over the past decade. Alas, Microsoft is now trading at a valuation of 30-40x earnings (depending upon whether you are forward or backward looking with your projections) and is not the best … Read the rest of this article!