It is hard to find a single flaw in the fiscal fourth quarter financial results presented by Microsoft  (MSFT) - Get Report .

However one chooses to assess the company's performance, whether from the perspective of top-line growth, margin expansion, revenue backlog or cash returns to shareholders, the Redmond-based tech giant has impressed once again. As a result, total company sales of $33.7 billion beat consensus expectations by a wide margin, rising 12% over last year's levels, while adjusted EPS of $1.37 soared above the $1.13 reported in the comparable period in 2018. 

The Cloud Story Continues

Microsoft has a very well-balanced business portfolio of personal computing, business process and productivity, and cloud computing services, each major segment representing one-third of total revenues. Each of them posted growth of at least 6% on a constant-currency basis, with the cloud services group rising by more than 20% in the most recent period.

Probably most important to the investment thesis is the performance of Microsoft's flagship cloud platform, Azure, along with the company's key cloud-based software packages that include Office Commercial and Dynamics 365. All of these businesses grew at an impressive pace of at least 34% year-over-year, excluding the negative impact of foreign exchange rates. It seems evident that Microsoft remains one of the top cloud service and SaaS solutions provider for business applications, and data storage and management.

Worth noting, as the graph below illustrates, growth in Azure continues to decelerate. However, because the platform has been gaining scale aggressively for a few years, total commercial cloud gross margin has expanded significantly to reach an impressive 65% in fiscal fourth quarter, despite expected pricing pressures in the competitive public cloud space.

Microsoft's Azure, revenue growth trend.

Beyond the results of the quarter, Microsoft's prospects also look inspiring. Baked into the guidance for the upcoming quarter and full year was an optimistic narrative around the company's commercial vertical, with some of the same bullish themes driving revenue to double-digit growth and stable operating margins in the upcoming year. The 25% increase in currency-adjusted commercial billings in fiscal fourth quarter seems to support the thesis, as do commercial unearned revenues of more than $34 billion that rose 13% above last year's levels.

Worth Every Penny

Microsoft has been an expensive stock for a while. On a current-year earnings basis, 27x is about as rich a multiple as the stock has commanded in the past twelve months at least. For this reason, value investors may have a hard time convincing themselves to buy shares after they have climbed 35% so far in 2019 and tripled in value over the past five years.

But under the leadership of CEO Satya Nadella since 2014, the company has been executing flawlessly on its gradual transformation from an on-premise software licensing and device vendor to an integrated cloud- and SaaS-based solutions provider. As Microsoft rides the right tech trends, revenues continue to grow consistently, while gains of scale and operational diligence allow margins to expand.

If there is a momentum stock that deserves to trade at fairly rich valuations while still showing potential for further price appreciation, Microsoft seems to be one of the most likely candidates.

The author has no positions in any stocks mentioned in this article.

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