In today's rapidly changing and highly competitive business world, it is vital for investors and industry enthusiasts to carefully assess 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 | 37.12 | 11.62 | 13.21 | 8.87% | $38.23 | $45.49 | 16.04% |
| Oracle Corp | 42.87 | 35.67 | 9.07 | 25.66% | $5.75 | $9.97 | 8.64% |
| ServiceNow Inc | 178.88 | 25.50 | 22.79 | 4.81% | $0.67 | $2.21 | 22.25% |
| Palo Alto Networks Inc | 51.91 | 22.21 | 17.15 | 6.33% | $0.45 | $1.58 | 13.88% |
| CrowdStrike Holdings Inc | 716.67 | 29.44 | 24.43 | -0.57% | $0.05 | $0.76 | 28.52% |
| Fortinet Inc | 49.55 | 83.22 | 13.31 | 90.26% | $0.66 | $1.24 | 13.0% |
| Gen Digital Inc | 30.32 | 8.82 | 4.91 | 7.92% | $0.51 | $0.78 | 3.07% |
| Monday.Com Ltd | 655.91 | 14.48 | 15.99 | -1.28% | $-0.02 | $0.23 | 32.67% |
| Dolby Laboratories Inc | 29.83 | 3.09 | 6.13 | 2.39% | $0.07 | $0.27 | 4.9% |
| CommVault Systems Inc | 43.94 | 27.25 | 8.70 | 5.56% | $0.02 | $0.19 | 16.06% |
| QXO Inc | 28.05 | 1.44 | 25.56 | -0.21% | $-0.03 | $0.01 | -2.0% |
| Qualys Inc | 33.55 | 12.37 | 9.62 | 10.53% | $0.05 | $0.13 | 8.36% |
| Teradata Corp | 38.92 | 25.33 | 1.82 | 32.0% | $0.08 | $0.27 | 0.46% |
| Progress Software Corp | 37.44 | 7.02 | 4.32 | 6.88% | $0.06 | $0.15 | 2.11% |
| SolarWinds Corp | 67.45 | 1.86 | 3.24 | 0.94% | $0.07 | $0.18 | 5.5% |
| Average | 143.23 | 21.26 | 11.93 | 13.66% | $0.6 | $1.28 | 11.24% |
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When analyzing Microsoft, the following trends become evident:
With a Price to Earnings ratio of 37.12, which is 0.26x less than the industry average, the stock shows potential for growth at a reasonable price, making it an interesting consideration for market participants.
Considering a Price to Book ratio of 11.62, which is well below the industry average by 0.55x, the stock may be undervalued based on its book value compared to its peers.
The stock's relatively high Price to Sales ratio of 13.21, surpassing the industry average by 1.11x, may indicate an aspect of overvaluation in terms of sales performance.
The Return on Equity (ROE) of 8.87% is 4.79% below the industry average, suggesting potential inefficiency in utilizing equity to generate profits.
With higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $38.23 Billion, which is 63.72x above the industry average, the company demonstrates stronger profitability and robust cash flow generation.
The company has higher gross profit of $45.49 Billion, which indicates 35.54x above the industry average, indicating stronger profitability and higher earnings from its core operations.
With a revenue growth of 16.04%, which surpasses the industry average of 11.24%, the company is demonstrating robust sales expansion and gaining market share.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio provides insights into the proportion of debt a company has in relation to its equity and asset value.
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:
Microsoft is in a relatively stronger financial position compared to its top 4 peers, as evidenced by its lower debt-to-equity ratio of 0.21.
This implies that the company relies less on debt financing and has a more favorable balance between debt and equity.
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 may indicate lower profitability compared to peers, despite high EBITDA and gross profit margins. The high revenue growth suggests potential for future earnings growth, despite current profitability challenges.
This article was generated by Benzinga's automated content engine and reviewed by an editor.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
