In today's rapidly changing and highly competitive business world, it is imperative for investors and industry observers to carefully assess companies before making investment choices. In this article, we will undertake a comprehensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) vis-à-vis its key competitors in the Software industry. Through a detailed analysis of important financial indicators, market standing, and growth potential, our goal is to provide valuable insights and highlight 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 | 33.22 | 10.12 | 11.76 | 8.17% | $36.79 | $47.83 | 12.27% |
| Oracle Corp | 43.75 | 36.41 | 9.26 | 25.66% | $5.75 | $9.97 | 8.64% |
| ServiceNow Inc | 149.39 | 21.96 | 19.39 | 4.06% | $0.62 | $2.33 | 21.34% |
| Palo Alto Networks Inc | 50.95 | 21.80 | 16.83 | 6.33% | $0.45 | $1.58 | 13.88% |
| CrowdStrike Holdings Inc | 841.02 | 34.55 | 28.67 | -0.57% | $0.05 | $0.76 | 28.52% |
| Fortinet Inc | 48.47 | 56.21 | 14.20 | 90.26% | $0.66 | $1.24 | 13.0% |
| Gen Digital Inc | 27.57 | 8.06 | 4.52 | 7.48% | $0.45 | $0.79 | 4.01% |
| Monday.Com Ltd | 526.74 | 15.81 | 17.61 | -1.28% | $-0.02 | $0.23 | 32.67% |
| Dolby Laboratories Inc | 31.30 | 3.25 | 6.25 | 2.72% | $0.11 | $0.32 | 13.13% |
| CommVault Systems Inc | 47.19 | 27.41 | 8.59 | 3.9% | $0.02 | $0.21 | 21.13% |
| QXO Inc | 23.63 | 1.21 | 21.53 | -0.21% | $-0.03 | $0.01 | -2.0% |
| Qualys Inc | 29.61 | 10.56 | 8.47 | 10.53% | $0.05 | $0.13 | 8.36% |
| SolarWinds Corp | 83.23 | 2.29 | 4 | 0.94% | $0.07 | $0.18 | 5.5% |
| Teradata Corp | 36.39 | 23.68 | 1.70 | 32.0% | $0.08 | $0.27 | 0.46% |
| Progress Software Corp | 37.66 | 5.73 | 3.42 | 0.27% | $0.05 | $0.18 | 21.47% |
| Average | 141.21 | 19.21 | 11.75 | 13.01% | $0.59 | $1.3 | 13.58% |
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By conducting a comprehensive analysis of Microsoft, the following trends become evident:
With a Price to Earnings ratio of 33.22, which is 0.24x 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 10.12, which is 0.53x the industry average, is substantially lower than the industry average, indicating potential undervaluation.
The Price to Sales ratio of 11.76, which is 1.0x 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 8.17% that is 4.84% 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 $36.79 Billion, which is 62.36x above the industry average, indicating stronger profitability and robust cash flow generation.
Compared to its industry, the company has higher gross profit of $47.83 Billion, which indicates 36.79x above the industry average, indicating stronger profitability and higher earnings from its core operations.
With a revenue growth of 12.27%, which is much lower than the industry average of 13.58%, the company is experiencing a notable slowdown in sales expansion.
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 stands in comparison with its top 4 peers, leading to the following comparisons:
Microsoft has a stronger financial position compared to its top 4 peers, as evidenced by its lower debt-to-equity ratio of 0.21.
This suggests that the company has a more favorable balance between debt and equity, which can be perceived as a positive indicator 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, Microsoft's performance is lower than industry peers, while its high EBITDA and gross profit indicate strong operational efficiency. The low revenue growth suggests a need for strategic initiatives to drive top-line expansion.
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.
