Industry Comparison: Evaluating Microsoft Against Competitors In Software Industry

In the dynamic and fiercely competitive business environment, conducting a thorough analysis of companies is crucial for investors and industry enthusiasts. In this article, we will perform an extensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) in relation to its major competitors in the Software industry. By closely examining crucial financial metrics, market position, and growth prospects, we aim to offer 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	33.63	9.68	12.01	7.85%	$48.06	$53.63	18.43%
Oracle Corp	36.20	18.47	9.13	22.68%	$9.51	$10.68	14.22%
ServiceNow Inc	89.24	13.78	12.20	4.52%	$0.89	$2.63	21.81%
Palo Alto Networks Inc	115.27	14.65	13.52	4.05%	$0.5	$1.84	15.66%
Fortinet Inc	32.07	78.85	9.17	33.9%	$0.64	$1.39	14.38%
Gen Digital Inc	28.73	6.56	3.65	5.56%	$0.5	$0.95	25.26%
UiPath Inc	38.17	4.45	5.64	11.08%	$0.02	$0.34	15.92%
Monday.Com Ltd	116.07	5.81	6.50	1.06%	$0.0	$0.28	26.24%
Dolby Laboratories Inc	24.37	2.32	4.61	1.89%	$0.06	$0.27	0.73%
CommVault Systems Inc	71.47	26.35	5.20	5.12%	$0.02	$0.22	18.39%
Qualys Inc	25.39	8.87	7.36	9.7%	$0.06	$0.14	10.41%
Teradata Corp	25.21	12.98	1.79	20.25%	$0.09	$0.25	-5.45%
Average	54.74	17.55	7.16	10.89%	$1.12	$1.73	14.32%

When conducting a detailed analysis of Microsoft, the following trends become clear:

• With a Price to Earnings ratio of 33.63, which is 0.61x less than the industry average, the stock shows potential for growth at a reasonable price, making it an interesting consideration for market participants.

• The current Price to Book ratio of 9.68, which is 0.55x the industry average, is substantially lower than the industry average, indicating potential undervaluation.

• With a relatively high Price to Sales ratio of 12.01, which is 1.68x the industry average, the stock might be considered overvalued based on sales performance.

• With a Return on Equity (ROE) of 7.85% that is 3.04% below the industry average, it appears that the company exhibits potential inefficiency in utilizing equity to generate profits.

• The company exhibits higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $48.06 Billion, which is 42.91x above the industry average, implying stronger profitability and robust cash flow generation.

• With higher gross profit of $53.63 Billion, which indicates 31.0x 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 14.32%, showcasing exceptional sales performance and strong demand for its products or services.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio indicates the proportion of debt and equity used by a company to finance its assets and operations.

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.

In terms of the Debt-to-Equity ratio, Microsoft can be assessed by comparing it to its top 4 peers, resulting in the following observations:

• Among its top 4 peers, Microsoft has a stronger financial position with a lower debt-to-equity ratio of 0.17.

• This indicates that the company relies less on debt financing and maintains a more favorable balance between debt and equity, which can be viewed positively by investors.

Key Takeaways

The low PE and PB ratios suggest that Microsoft is undervalued compared to its peers in the Software industry. However, the high PS ratio indicates that the market values Microsoft's revenue more highly. The low ROE implies that Microsoft is less efficient in generating profits from shareholders' equity. On the other hand, the high EBITDA, gross profit, and revenue growth indicate strong financial performance and potential for future growth compared to industry peers.

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