Lubin Investment · Blog

Microsoft, Alphabet, Adobe: are these stocks too pricey?

2026-06-10 ·

No, not everywhere : it depends on the company. Microsoft (49.7 times its cash) and Alphabet (116.6 times) are priced as if perfection were guaranteed, while their cash per share stalls or falls. Adobe (11.7 times), far more solid, sits at its historic low. A multiple alone says nothing : the growth behind it decides.

Why 'tech is too expensive' means nothing

You have surely heard it : 'tech is too expensive'. That sentence mixes everything up. Microsoft, Alphabet and Adobe all sit in the same 'big tech' box, yet the market values them in radically different ways. One trades ten times richer than another for comparable quality. Understanding why means learning to read one simple number : the price of a share divided by the cash it generates.

That number is the P/FCF, for price to free cash flow. Free cash flow is the money that actually stays in the bank once every bill is paid : salaries, machines, taxes, investments. Not accounting profit, which is easy to dress up, but cash. The P/FCF is the share price divided by that yearly cash. A P/FCF of 12 means you are paying twelve years of that cash today. The lower it is, the cheaper. The higher it is, the more the market is asking you to believe in strong future growth.

This number is also called a 'multiple' : how many times the yearly cash you agree to pay. And here is the whole point of this article : a high multiple is not 'expensive' in absolute terms. It is only expensive if growth fails to follow. Paying 50 times the cash of a company that doubles every three years can be a bargain. Paying 12 times the cash of a declining company can be a trap. The number is never judged on its own.

How I score quality, before I ever look at the price

Before asking whether a stock is expensive, I ask whether it is a good business. Those are two separate questions. For the first, I do not trust my gut : I run the company through concrete financial criteria and give it a score out of 10. Is it truly profitable ? Is its cash per share rising ? Does it convert earnings into real cash ? Is its debt under control ? Does it buy back shares instead of wasting money ? This score says nothing about price : it only measures how solid the business is.

Two indicators come up often below. The free cash flow margin : out of every 100 dollars of sales, how many end up as truly available cash. The Cash ROCE : the cash generated against all the capital used to generate it ; in plain terms, the return on every dollar invested in the business. The higher these two numbers, the more efficient the cash machine. Keep them in mind, they explain everything.

Microsoft (MSFT) : a great business priced as if it will accelerate

Microsoft passes 8 of my 10 criteria. It is genuinely elite : 39 cents of net margin per dollar of revenue, revenue growing 13.5 % a year, and a negative cash cycle of 62 days. That last point is rare and precious : its clients pay it before it pays its suppliers, exactly like Costco. The money works for it, not the other way around. It also buys back shares regularly, which concentrates value on those who stay.

But two warning lights flash red. Its cash per share grows only 4.8 % a year, below my 10 % threshold. And its earnings-to-cash conversion ratio is just 0.48 : less than half of profits turn into free cash. The culprit has a name : massive investment in artificial intelligence. Microsoft is burning cash on data centers today, betting it will come back later. It may be a good bet, but in the meantime the cash the shareholder receives stalls.

That is the heart of the price problem. At 49.7 times its cash, the market prices Microsoft as if growth will sharply accelerate. My valuation model, aiming for a 15 % annual return, lands a reasonable buy price near 144 dollars. The stock trades at 403. So I am 64 % above the entry point I allow myself : the margin of safety is negative. Microsoft is still superb. But at this price, you are already paying for the acceleration before it arrives.

Alphabet (GOOGL) : the extreme case, 116.6 times a shrinking cash

Alphabet is the most puzzling of the three. Its quality score is only 6 out of 10. Two criteria clearly fail : its cash per share is falling 3 % a year, and its Cash ROCE is just 9.2 %, below my 15 % threshold. Two more are warnings, including a free cash flow margin of 9.1 %, just under the 10 % line.

The paradox is striking. Alphabet is a machine for turning your attention into ad revenue : nobody does it better. But turning that revenue into cash that returns to the shareholder is another story. Its cash margin is only 9.1 %, and its cash per share has been falling for five years. Two reasons : huge stock-based compensation, and heavy investment. Stock-based compensation is paying employees in shares instead of cash. It looks free, but it creates new shares, so it dilutes existing shareholders : your slice of the pie shrinks. At Alphabet it absorbs 40 % of free cash flow. Enormous.

And yet the market values Alphabet at 116.6 times its cash, 7 times its sector median. That multiple does not assume solid growth : it assumes a spectacular acceleration of a cash flow that, today, is shrinking. My reasonable buy price comes out at 54 dollars, against a 364 price. An 85 % premium. This is the perfect illustration of the high-multiple trap : you pay dearly for future growth that current numbers do not yet show.

Adobe (ADBE) : the highest quality, at the lowest price

Adobe is the near-perfect counter-example. Quality score of 9 out of 10, meaning 23 of 25 criteria passed. A free cash flow margin of 34 % : out of every 100 dollars of sales, 34 end up as available cash, where most companies cap around 10. A Cash ROCE of 153 %, which is exceptional. A negative cash cycle of 28 days. And above all, its cash per share grows 10.9 % a year : the only one of the three to clear my threshold. Everything Microsoft and Alphabet lack, Adobe has.

And its multiple ? 11.7 times its cash. The lowest in its entire history. The market crushed Adobe out of fear of generative AI, Midjourney and Canva chief among them, and because its growth slowed, to about 11 % a year versus over 20 % before. But the free cash flow itself keeps rising. The result : a gaping gap between the real quality, 9 out of 10, and the fear the market projects onto it.

A word of caution though : cheaper does not mean given away. Even at 11.7 times its cash, Adobe is not an obvious bargain in my eyes. My reasonable buy price comes out at 149 dollars, against a 238 price : still 37 % above. The difference is that this 37 % premium is far more tolerable than Microsoft's 64 % or Alphabet's 85 %. Relative to the other two, Adobe is by far the most affordable. You can check it on Adobe's analysis page.

What these three cases teach you to read

Three companies from the same family, three prices with nothing in common. If you keep only three reflexes :

The trap runs both ways and it is the same. A high multiple is only expensive if growth disappoints, and a low multiple is only a bargain if the quality holds. That is precisely why I always judge a business's quality before its price, never the reverse. You can find the full grid on my methodology page, and compare Microsoft, Alphabet and Adobe yourself on their respective analysis pages.

At bottom, what I wanted was to be able to ask these two questions, quality on one side, fair price on the other, in seconds and for any stock. Since no tool did it my way, I built it. Type a ticker, and you instantly see where the reasonable price sits against the current quote.

FAQ

What is P/FCF, in one sentence ?

The share price divided by the free cash flow it generates each year, that is the cash left once every bill is paid. A P/FCF of 12 means you pay twelve years of that cash : low = cheap, high = expensive.

Does a high multiple always mean 'too expensive' ?

No. A high multiple means the market is pricing strong future growth. It is only too expensive if that growth disappoints. Microsoft at 49.7 times and Alphabet at 116.6 are expensive because their cash per share stalls or falls, not because the number is high on its own.

Why does Alphabet trade at 116.6 times its cash ?

Because the market bets on a spectacular acceleration of its cash. But today that cash is falling 3 % a year, its cash margin is only 9.1 %, and stock-based compensation, the share-based pay that dilutes shareholders, absorbs 40 % of free cash flow.

Is Adobe at 11.7 times its cash a bargain ?

It is the cheapest of the three and by far the most solid (quality 9/10), but not an obvious bargain. My reasonable buy price is 149 dollars, against a 238 quote : still 37 % above. Cheaper does not mean given away.

Why look at cash per share rather than revenue ?

Because revenue can climb without benefiting you : if the company constantly creates new shares to pay employees, your slice shrinks. Cash per share measures what the shareholder actually receives, dilution included.

Voir l'analyse MSFT sur Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).