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Evaluating Microsoft Against Peers In Software Industry

Benzinga · 2d ago

Amidst today's fast-paced and highly competitive business environment, it is crucial for investors and industry enthusiasts to conduct comprehensive company evaluations. In this article, we will delve into an extensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) in comparison to its major competitors within the Software industry. By analyzing critical financial metrics, market position, and growth potential, our objective is to provide valuable insights for investors and offer a deeper understanding of company's performance in the industry.

Microsoft Background

Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three equally sized broad segments: productivity and business processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), intelligence cloud (infrastructure- and platform-as-a-service offerings Azure, Windows Server OS, SQL Server), and more personal computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops).

Company P/E P/B P/S ROE EBITDA (in billions) Gross Profit (in billions) Revenue Growth
Microsoft Corp 34.85 10.03 12.45 7.85% $48.06 $53.63 18.43%
Oracle Corp 46.55 23.73 9.82 13.12% $6.12 $10.04 12.17%
ServiceNow Inc 99.68 15.14 13.63 4.52% $0.89 $2.63 21.81%
Palo Alto Networks Inc 120.18 15.27 14.09 4.05% $0.5 $1.84 15.66%
Fortinet Inc 34.13 83.90 9.76 33.9% $0.64 $1.39 14.38%
Gen Digital Inc 28.85 6.59 3.66 5.56% $0.5 $0.95 25.26%
Monday.Com Ltd 120.81 6.05 6.77 1.06% $0.0 $0.28 26.24%
UiPath Inc 476.67 4.56 5.22 0.09% $-0.02 $0.3 14.38%
Dolby Laboratories Inc 25.31 2.41 4.79 1.89% $0.06 $0.27 0.73%
CommVault Systems Inc 70.16 25.87 5.10 5.12% $0.02 $0.22 18.39%
Qualys Inc 28.26 9.88 8.19 9.7% $0.06 $0.14 10.41%
Teradata Corp 25.38 13.07 1.80 20.25% $0.09 $0.25 -5.45%
Average 97.82 18.77 7.53 9.02% $0.81 $1.66 14.0%

By analyzing Microsoft, we can infer the following trends:

  • The Price to Earnings ratio of 34.85 is 0.36x lower than the industry average, indicating potential undervaluation for the stock.

  • The current Price to Book ratio of 10.03, which is 0.53x the industry average, is substantially lower than the industry average, indicating potential undervaluation.

  • The Price to Sales ratio of 12.45, which is 1.65x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.

  • With a Return on Equity (ROE) of 7.85% that is 1.17% below the industry average, it appears that the company exhibits potential inefficiency in utilizing equity to generate profits.

  • The company has higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $48.06 Billion, which is 59.33x above the industry average, indicating stronger profitability and robust cash flow generation.

  • Compared to its industry, the company has higher gross profit of $53.63 Billion, which indicates 32.31x above the industry average, indicating stronger profitability and higher earnings from its core operations.

  • With a revenue growth of 18.43%, which surpasses the industry average of 14.0%, the company is demonstrating robust sales expansion and gaining market share.

Debt To Equity Ratio

debt to equity

The debt-to-equity (D/E) ratio is a key indicator of a company's financial health and its reliance on debt financing.

Considering the debt-to-equity ratio in industry comparisons allows for a concise evaluation of a company's financial health and risk profile, aiding in informed decision-making.

When assessing Microsoft against its top 4 peers using the Debt-to-Equity ratio, the following comparisons can be made:

  • When considering the debt-to-equity ratio, Microsoft exhibits a stronger financial position compared to its top 4 peers.

  • This indicates that the company has a favorable balance between debt and equity, with a lower debt-to-equity ratio of 0.17, which can be perceived as a positive aspect by investors.

Key Takeaways

For Microsoft in the Software industry, the PE and PB ratios suggest the stock is undervalued compared to peers, indicating potential for growth. However, the high PS ratio implies the stock may be overvalued based on revenue. In terms of ROE, EBITDA, gross profit, and revenue growth, Microsoft shows strong performance, outperforming industry peers and demonstrating solid financial health.

This article was generated by Benzinga's automated content engine and reviewed by an editor.