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Wall Street JournalMarket Analysis: Microsoft And Competitors In Software Industry
In today's rapidly changing and fiercely competitive business landscape, it is vital for investors and industry enthusiasts to carefully evaluate companies. In this article, we will perform a comprehensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) against its key competitors in the Software industry. By analyzing important financial metrics, market position, and growth prospects, we aim to provide valuable insights for investors and shed light on company's performance within 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 | 34.36 | 9.89 | 12.27 | 7.85% | $48.06 | $53.63 | 18.43% |
| Oracle Corp | 50.37 | 25.68 | 10.62 | 13.12% | $6.12 | $10.04 | 12.17% |
| ServiceNow Inc | 103.31 | 15.69 | 14.13 | 4.52% | $0.89 | $2.63 | 21.81% |
| Palo Alto Networks Inc | 125.85 | 15.99 | 14.76 | 4.05% | $0.5 | $1.84 | 15.66% |
| Fortinet Inc | 35.77 | 87.93 | 10.23 | 33.9% | $0.64 | $1.39 | 14.38% |
| Gen Digital Inc | 29.77 | 6.80 | 3.78 | 5.56% | $0.5 | $0.95 | 25.26% |
| UiPath Inc | 44.45 | 5.15 | 6.57 | 11.08% | $-0.02 | $0.3 | 13.65% |
| Monday.Com Ltd | 127.59 | 6.38 | 7.15 | 1.06% | $0.0 | $0.28 | 26.24% |
| Dolby Laboratories Inc | 25.57 | 2.44 | 4.84 | 1.89% | $0.06 | $0.27 | 0.73% |
| CommVault Systems Inc | 68.74 | 25.35 | 5 | 5.12% | $0.02 | $0.22 | 18.39% |
| Qualys Inc | 28.31 | 9.89 | 8.20 | 9.7% | $0.06 | $0.14 | 10.41% |
| Teradata Corp | 24.68 | 12.71 | 1.75 | 20.25% | $0.09 | $0.25 | -5.45% |
| Average | 60.4 | 19.46 | 7.91 | 10.02% | $0.81 | $1.66 | 13.93% |
By conducting an in-depth analysis of Microsoft, we can identify the following trends:
With a Price to Earnings ratio of 34.36, which is 0.57x less than the industry average, the stock shows potential for growth at a reasonable price, making it an interesting consideration for market participants.
With a Price to Book ratio of 9.89, significantly falling below the industry average by 0.51x, it suggests undervaluation and the possibility of untapped growth prospects.
The stock's relatively high Price to Sales ratio of 12.27, surpassing the industry average by 1.55x, may indicate an aspect of overvaluation in terms of sales performance.
The company has a lower Return on Equity (ROE) of 7.85%, which is 2.17% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.
The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $48.06 Billion is 59.33x above the industry average, highlighting stronger profitability and robust cash flow generation.
With higher gross profit of $53.63 Billion, which indicates 32.31x above the industry average, the company demonstrates stronger profitability and higher earnings from its core operations.
The company's revenue growth of 18.43% is notably higher compared to the industry average of 13.93%, showcasing exceptional sales performance and strong demand for its products or services.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio is an important measure to assess the financial structure and risk profile of a company.
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.
By evaluating Microsoft against its top 4 peers in terms of the Debt-to-Equity ratio, the following observations arise:
Compared to its top 4 peers, Microsoft has a stronger financial position indicated by its lower debt-to-equity ratio of 0.17.
This suggests that the company relies less on debt financing and has a more favorable balance between debt and equity, which can be seen as a positive attribute 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.