Former Microsoft ($MSFT) evangelist – now Google ($GOOG) evangelist – has a new post up looking at the market valuation of $MSFT. Now I have some quibbles with some of the analysis – but the market valuation of $MSFT is an interesting question. The core $MSFT business is still really strong – nearly 10% CAGR with revenues since 2006 and EBITDA margins over 40%. But no respect from the market.

Here is the comment I left on Don’s post:

I agree that the market is valuing $MSFT more like HP ($HPQ) or IBM ($IBM) than Apple ($AAPL) or Google ($GOOG) – on an EV/EBITDA basis.

http://www.valuecruncher.com/companies/765

This is despite $MSFT having financial performance characteristics more like $AAPL and $GOOG than $HPQ or $IBM – EBITDA margins as only one metric.

$MSFT has a great core business that will endure for a while yet. The market is placing a pretty low value on that business – and nothing on any growth options that the company has.

$MSFT has EBITDA margins of 43% ($1 of $MSFT revenues produces $0.43 of profit at the EBITDA line) while $IBM has EBITDA margins of 23%. $MSFT’s revenues grew at a 9.6% CAGR between 2006 and 2009 – $IBM’s growth was a CAGR of 0.6% over the same period. The market is currently valuing a dollar of $IBM’s EBITDA higher than a dollar of $MSFT’s EBITDA – really…

Even if you think that $MSFT’s fortunes are on the wane – the stock looks cheap.

Disclosure – no positions. But thinking about changing that…