MSFT is selling for $23.85 with $5.50 excess per share cash over debt. This nets to a net price of $18.35 per share and calendar year 2011 projected free cash flow per share of $2.80. This results in a PE ratio of 6.6 with projected growth in earnings.
This appears to be unbelievable and very undervalued on a discounted cash flow basis.
How can this be with big institutions setting the market price and with far more knowledge about the company than the retail investor?
The only possible conclusion is that the market believes that MSFT will waste all its excess cash and that the future is one of declining not increasing earnings. Any other assumptions would result in a higher stock price.
I find these assumptions to be unrealistic but they are imbedded in the market price.