Virtual Reality (VR) is changing how we interact with and experience the world around us. Virtual Reality is growing as an industry, and several companies and developers are creating new VR technologies and applications. Given the long-term growth prospects of VR, it could be wise to invest in fundamentally sound VR stocks, Microsoft Corporation (MSFT), General Electric Company (GE), and Baidu, Inc. (BIDU).
Before delving deeper into the fundamentals of these stocks, let’s discuss the growth prospects of VR.
Virtual reality (VR) technology gives users a sense of presence and immersion by simulating three-dimensional (3D) surroundings on computers. Recent improvements in hardware and software have made VR readily available to consumers and reduced costs.
VR typically involves wearing a headset with a screen that displays the virtual world and motion tracking sensors that detect the user’s movements and modifies the display in accordance with those movements. VR is used across gaming, entertainment, education, healthcare, e-commerce, automotive, tourism, and other industries.
Businesses are leveraging VR to create more realistic and engaging experiences. The applicability of VR is expanding across different industries. Companies adopting VR can have an edge over their competitors by offering innovative products and services.
According to Grand View Research, the global virtual reality market is expected to grow at a CAGR of 13.8% to reach $87 billion by 2030. Investing in companies making innovations in the virtual reality space could help gain exposure to an innovative and high-potential industry.
Let’s discuss the fundamentals of MSFT, GE, and BIDU.
Microsoft Corporation (MSFT)
MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
On April 17, 2023, MSFT and Epic announced the expansion of their strategic collaboration to develop and integrate generative AI into healthcare by combining the scale and power of Azure OpenAI Service with Epic’s electronic health record (EHR) software.
MSFT’s corporate vice president of the AI platform, Eric Boyd, said, “Our expanded partnership builds on a long history of collaboration between Microsoft, Nuance, and Epic, including our work to help healthcare organizations migrate their Epic environments to Azure. Together we can help providers deliver significant clinical and business outcomes leveraging the power of the Microsoft Cloud and Epic.”
MSFT’s revenue grew at a CAGR of 14.4% over the past three years. Its net income grew at a CAGR of 14.3% over the past three years. In addition, its EBIT grew at a CAGR of 18.3% in the same time frame.
In terms of the trailing-12-month gross profit margin, MSFT’s 68.52% is 36% higher than the 50.37% industry average. Likewise, its 48.21% trailing-12-month EBITDA margin is 444.6% higher than the industry average of 8.85%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 12.54%, compared to the industry average of 2.39%.
MSFT’s total revenue increased 7.1% year-over-year to $52.86 billion for the third quarter ended March 31, 2023. At the end of the period, its cash and cash equivalents increased 112.5% year-over-year to $26.56 billion. The company’s net income increased 9% year-over-year to $18.30 billion. Also, its EPS came in at $2.45, representing an increase of 10% year-over-year.
Analysts expect MSFT’s EPS and revenue for the quarter ending June 30, 2023, to increase 14.9% and 6.9% year-over-year to $2.56 and $55.45 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 33.9% to close the last trading session at $305.56.
MSFT’s POWR Ratings reflect this positive outlook. MSFT has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #11 out of 50 stocks in the Software – Business industry. It has an A grade for Sentiment and a B for Stability and Quality. Click here to see the other ratings of MSFT for Growth, Value, and Momentum.
General Electric Company (GE)
GE is a high-tech industrial company that operates in Europe, China, Asia, the Americas, the Middle East, and Africa. The company provides gas and steam turbines, a full balance of plant, upgrade, service solutions, and data-leveraging software for power generation. It serves industrial, government, and other customers.
On March 2, 2023, GE announced that it plans to invest more than $450 million at its existing U.S. manufacturing facility this year by purchasing cutting-edge equipment and upgrading its position as it looks to create two independent companies in energy and aerospace.
On February 14, 2023, GE announced that Air India had signed a firm order for 40 GEnx-1B and 20 GE9X engines, also a multi-year TrueChoice engine services agreement. The deal was signed in coordination with the airline’s firm order for 20 Boeing 787 and 10 Boeing 777X aircraft.
GE’s EBIT grew at a CAGR of 2.9% over the past three years.
In terms of trailing-12-month levered FCF margin, GE’s 8.12% is 80.7% higher than the 4.49% industry average. Likewise, its 11.31% trailing-12-month net income margin is 70% higher than the industry average of 6.66%. Furthermore, the stock’s trailing-12-month Return on Common Equity came in at 22.58%, compared to the industry average of 13.98%.
For the fiscal first quarter ended March 31, 2023, GE’s adjusted revenues increased 15% year-over-year to $13.70 billion. Its adjusted profit rose 111.3% over the prior-year quarter to $877 million. Its adjusted EPS came in at $0.27, compared to an adjusted loss per share of $0.09 in the prior-year quarter.
For the quarter ending September 30, 2023, GE’s EPS is expected to increase 30.7% year-over-year to $0.46. Its revenue for fiscal 2024 is expected to increase 8.4% year-over-year to $68.64 billion. Over the past year, the stock has gained 73.9% to close the last trading session at $101.18.
GE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the A-rated Industrial – Manufacturing industry, it is ranked #7 out of 36 stocks. It has a B grade for Value, Momentum, and Sentiment. To see the other ratings of GE for Growth, Stability, and Quality, click here.
Baidu, Inc. (BIDU)
Headquartered in Beijing, China, BIDU is a Chinese-language internet service provider. The company offers a Chinese language search platform on its Baidu.com website, enabling users to find information online. The company operates through two segments: Baidu Core and iQIYI.
On February 22, 2023, BIDU announced that its board of directors authorized a new share repurchase program to repurchase up to $5 billion of its shares through December 31, 2025.
BIDU’s revenue grew at a CAGR of 4.8% over the past three years. Its net income grew at a CAGR of 54.3% over the past three years. In addition, its EBIT grew at a CAGR of 35.2% in the same time frame.
In terms of trailing-12-month levered FCF margin, BIDU’s 16.48% is 104.5% higher than the 8.06% industry average. Likewise, its 25.10% trailing-12-month EBITDA margin is 39.8% higher than the industry average of 17.95%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 6.70%, compared to the industry average of 3.63%.
BIDU’s total revenues for the fourth quarter ended December 31, 2022, came in at RMB33.08 billion ($4.79 billion). The company’s non-GAAP operating income rose 50.8% year-over-year to RMB6.50 billion ($940.23 million).
Its non-GAAP net income to BIDU increased 31.5% over the prior-year quarter to RMB5.37 billion ($776.78 million). Also, its non-GAAP earnings per ADS came in at RMB15.25, representing an increase of 31.5% year-over-year. In addition, its adjusted EBITDA rose 43% year-over-year to RMB8.23 billion ($1.19 billion).
Analysts expect BIDU’s EPS and revenue for the quarter ended March 31, 2023, to increase 11.5% and 3.2% year-over-year to $1.86 and $4.35 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 55% to close the last trading session at $121.28.
BIDU’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Growth and Value. It is ranked #17 out of 46 stocks in the China industry. Click here to see the other ratings of BIDU for Momentum, Stability, Sentiment, and Quality.
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MSFT shares fell $305.56 (-100.00%) in premarket trading Tuesday. Year-to-date, MSFT has gained 27.99%, versus a 8.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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