In the ever-evolving and intensely competitive business landscape, conducting a thorough company analysis is of utmost importance for investors and industry followers. In this article, we will carry out an in-depth industry comparison, assessing Microsoft (NASDAQ:MSFT) alongside its primary competitors in the Software industry. By meticulously examining key financial metrics, market positioning, and growth prospects, we aim to offer valuable insights to 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 | 34.43 | 10.78 | 12.26 | 8.87% | $38.23 | $45.49 | 16.04% |
| Oracle Corp | 49.56 | 49.26 | 10.11 | 30.01% | $5.44 | $9.4 | 6.86% |
| ServiceNow Inc | 165.20 | 23.55 | 21.05 | 4.81% | $0.67 | $2.21 | 22.25% |
| Palo Alto Networks Inc | 49.72 | 21.28 | 16.43 | 6.33% | $0.45 | $1.58 | 13.88% |
| CrowdStrike Holdings Inc | 539.51 | 31.99 | 26.29 | 1.75% | $0.12 | $0.73 | 31.74% |
| Fortinet Inc | 46.62 | 78.30 | 12.53 | 90.26% | $0.66 | $1.24 | 13.0% |
| Gen Digital Inc | 30.49 | 8.87 | 4.94 | 7.92% | $0.51 | $0.78 | 3.07% |
| Monday.Com Ltd | 661.84 | 14.61 | 16.13 | -1.28% | $-0.02 | $0.23 | 32.67% |
| Dolby Laboratories Inc | 29.94 | 3.10 | 6.15 | 2.39% | $0.07 | $0.27 | 4.9% |
| CommVault Systems Inc | 44.31 | 27.48 | 8.78 | 5.56% | $0.02 | $0.19 | 16.06% |
| QXO Inc | 29.89 | 1.54 | 27.24 | -0.21% | $-0.03 | $0.01 | -2.0% |
| Qualys Inc | 33.86 | 12.48 | 9.71 | 10.53% | $0.05 | $0.13 | 8.36% |
| Teradata Corp | 36.12 | 23.50 | 1.69 | 32.0% | $0.08 | $0.27 | 0.46% |
| Progress Software Corp | 37.23 | 6.98 | 4.30 | 6.88% | $0.06 | $0.15 | 2.11% |
| SolarWinds Corp | 60.27 | 1.66 | 2.90 | 0.94% | $0.07 | $0.18 | 5.5% |
| Average | 129.61 | 21.76 | 12.02 | 14.13% | $0.58 | $1.24 | 11.35% |
Through a meticulous analysis of Microsoft, we can observe the following trends:
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At 34.43, the stock's Price to Earnings ratio is 0.27x less than the industry average, suggesting favorable growth potential.
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The current Price to Book ratio of 10.78, which is 0.5x the industry average, is substantially lower than the industry average, indicating potential undervaluation.
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The Price to Sales ratio of 12.26, which is 1.02x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.
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With a Return on Equity (ROE) of 8.87% that is 5.26% below the industry average, it appears that the company exhibits potential inefficiency in utilizing equity to generate profits.
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The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $38.23 Billion is 65.91x above the industry average, highlighting stronger profitability and robust cash flow generation.
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The company has higher gross profit of $45.49 Billion, which indicates 36.69x above the industry average, indicating stronger profitability and higher earnings from its core operations.
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With a revenue growth of 16.04%, which surpasses the industry average of 11.35%, 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.
By considering the Debt-to-Equity ratio, Microsoft can be compared to its top 4 peers, leading to the following observations:
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Microsoft has a stronger financial position compared to its top 4 peers, as evidenced by its lower debt-to-equity ratio of 0.21.
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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
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. In terms of profitability, Microsoft's low ROE may be a concern, despite its high EBITDA and gross profit margins. The high revenue growth rate reflects positively on Microsoft's future prospects within the industry.
This article was generated by Benzinga's automated content engine and reviewed by an editor.
