In the fast-paced and cutthroat world of business, conducting thorough company analysis is essential for investors and industry experts. In this article, we will undertake a comprehensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) in comparison to its major competitors within the Software industry. By analyzing crucial 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 | 38.04 | 11.37 | 13.62 | 8.27% | $40.71 | $48.15 | 13.27% |
| Oracle Corp | 48.55 | 28.94 | 10.52 | 18.43% | $6.83 | $11.16 | 11.31% |
| ServiceNow Inc | 136.39 | 20.54 | 18.30 | 4.66% | $0.72 | $2.44 | 18.63% |
| Palo Alto Networks Inc | 117.41 | 18.84 | 16.31 | 3.85% | $0.4 | $1.67 | 15.33% |
| Fortinet Inc | 42.67 | 40.43 | 13.06 | 25.08% | $0.56 | $1.25 | 13.77% |
| Gen Digital Inc | 28.23 | 7.95 | 4.61 | 6.43% | $0.53 | $0.81 | 4.77% |
| Monday.Com Ltd | 298.36 | 13.76 | 15.15 | 2.57% | $0.01 | $0.25 | 30.12% |
| CommVault Systems Inc | 103.23 | 23.54 | 7.87 | 10.11% | $0.03 | $0.23 | 23.17% |
| Dolby Laboratories Inc | 28.07 | 2.77 | 5.47 | 3.61% | $0.14 | $0.33 | 1.38% |
| Qualys Inc | 28.87 | 10.30 | 8.43 | 9.75% | $0.06 | $0.13 | 9.67% |
| Progress Software Corp | 50.06 | 6.33 | 3.50 | 2.51% | $0.07 | $0.19 | 28.88% |
| Teradata Corp | 15.30 | 13.06 | 1.24 | 30.24% | $0.09 | $0.25 | -10.11% |
| Rapid7 Inc | 57.05 | 28.50 | 1.74 | 5.98% | $0.02 | $0.15 | 2.51% |
| N-able Inc | 97 | 1.89 | 3.11 | -0.93% | $0.01 | $0.09 | 3.91% |
| Average | 80.86 | 16.68 | 8.41 | 9.41% | $0.73 | $1.46 | 11.8% |
Upon closer analysis of Microsoft, the following trends become apparent:
With a Price to Earnings ratio of 38.04, which is 0.47x 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 11.37, which is 0.68x the industry average, is substantially lower than the industry average, indicating potential undervaluation.
The stock's relatively high Price to Sales ratio of 13.62, surpassing the industry average by 1.62x, may indicate an aspect of overvaluation in terms of sales performance.
With a Return on Equity (ROE) of 8.27% that is 1.14% below the industry average, it appears that the company exhibits potential inefficiency in utilizing equity to generate profits.
Compared to its industry, the company has higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $40.71 Billion, which is 55.77x above the industry average, indicating stronger profitability and robust cash flow generation.
The company has higher gross profit of $48.15 Billion, which indicates 32.98x above the industry average, indicating stronger profitability and higher earnings from its core operations.
With a revenue growth of 13.27%, which surpasses the industry average of 11.8%, the company is demonstrating robust sales expansion and gaining market share.
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.
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:
Microsoft exhibits a stronger financial position compared to its top 4 peers in the sector, as indicated by its lower debt-to-equity ratio of 0.19.
This suggests that the company has a more favorable balance between debt and equity, which can be seen as a positive aspect for investors.
Key Takeaways
For Microsoft in the Software industry, the PE and PB ratios suggest that the company is undervalued compared to its peers. However, the high PS ratio indicates that investors are willing to pay a premium for its revenue. In terms of ROE, Microsoft's performance is lagging behind its peers, while its high EBITDA and gross profit margins reflect strong operational efficiency. The high revenue growth rate further highlights Microsoft's competitive position in the industry.
This article was generated by Benzinga's automated content engine and reviewed by an editor.