December 11, 2004

Why so many long-term concerns about Microsoft stock

Author: Melanie Hollands

Since I began writing this column, Iâve had long-term concerns about Microsoft and its growth outlook. Aside from slowing growth at the company and the competitive threat of Linux, my concerns include the delay of Longhorn and the
transition leading up to its introduction. Operating cash flow (OCF) growth has been slowing pretty dramatically the last four years or so. In addition, a number of factors should continue to suppress top-line growth rates at the company.

For the last year, MSFT stock has flat-lined. But a three-year chart relative to the S&P 500 (the most commonly used benchmark index) is more revealing, since the stock has under-performed the Index by 20 percent. This means that over the last three years an investor would have done better by buying and holding the S&P 500 Index than buying and holding Microsoft stock. (Over a five-year investment horizon, itâs been an even less-attractive investment: MSFT under-performed the Index by around 30 percent.)

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