In today's rapidly evolving and fiercely competitive business landscape, it is crucial for investors and industry analysts to conduct comprehensive company evaluations. In this article, we will undertake an in-depth industry comparison, assessing Microsoft (NASDAQ:MSFT) alongside its primary competitors in the Software industry. By meticulously examining crucial financial indicators, market positioning, and growth potential, we aim to provide 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 | 36.12 | 11.30 | 12.86 | 8.87% | $38.23 | $45.49 | 16.04% |
| Oracle Corp | 48.50 | 48.21 | 9.90 | 30.01% | $5.44 | $9.4 | 6.86% |
| ServiceNow Inc | 174.94 | 24.94 | 22.29 | 4.81% | $0.67 | $2.21 | 22.25% |
| Palo Alto Networks Inc | 52.47 | 22.45 | 17.34 | 6.33% | $0.45 | $1.58 | 13.88% |
| CrowdStrike Holdings Inc | 714.04 | 29.33 | 24.34 | -0.57% | $0.05 | $0.76 | 28.52% |
| Fortinet Inc | 49.34 | 82.87 | 13.26 | 90.26% | $0.66 | $1.24 | 13.0% |
| Gen Digital Inc | 32.02 | 9.31 | 5.19 | 7.92% | $0.51 | $0.78 | 3.07% |
| Monday.Com Ltd | 680.93 | 15.03 | 16.60 | -1.28% | $-0.02 | $0.23 | 32.67% |
| Dolby Laboratories Inc | 29.91 | 3.10 | 6.15 | 2.39% | $0.07 | $0.27 | 4.9% |
| CommVault Systems Inc | 44.35 | 27.51 | 8.78 | 5.56% | $0.02 | $0.19 | 16.06% |
| QXO Inc | 30.60 | 1.57 | 27.88 | -0.21% | $-0.03 | $0.01 | -2.0% |
| Qualys Inc | 35.07 | 12.93 | 10.06 | 10.53% | $0.05 | $0.13 | 8.36% |
| Teradata Corp | 37.45 | 24.37 | 1.75 | 32.0% | $0.08 | $0.27 | 0.46% |
| Progress Software Corp | 37.51 | 7.03 | 4.33 | 6.88% | $0.06 | $0.15 | 2.11% |
| SolarWinds Corp | 65.91 | 1.81 | 3.17 | 0.94% | $0.07 | $0.18 | 5.5% |
| Average | 145.22 | 22.18 | 12.22 | 13.97% | $0.58 | $1.24 | 11.12% |
By conducting an in-depth analysis of Microsoft, we can identify the following trends:
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With a Price to Earnings ratio of 36.12, which is 0.25x less than the industry average, the stock shows potential for growth at a reasonable price, making it an interesting consideration for market participants.
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The current Price to Book ratio of 11.3, which is 0.51x the industry average, is substantially lower than the industry average, indicating potential undervaluation.
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The stock's relatively high Price to Sales ratio of 12.86, surpassing the industry average by 1.05x, may indicate an aspect of overvaluation in terms of sales performance.
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The company has a lower Return on Equity (ROE) of 8.87%, which is 5.1% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.
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With higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $38.23 Billion, which is 65.91x above the industry average, the company demonstrates stronger profitability and robust cash flow generation.
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With higher gross profit of $45.49 Billion, which indicates 36.69x above the industry average, the company demonstrates 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 11.12%, the company is demonstrating robust sales expansion and gaining market share.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio gauges the extent to which a company has financed its operations through debt relative to equity.
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 examining Microsoft in comparison to its top 4 peers with respect to the Debt-to-Equity ratio, the following information becomes apparent:
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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 0.21.
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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 stock is undervalued compared to its peers. However, the high PS ratio indicates that the stock may be overvalued based on revenue. In terms of ROE, EBITDA, and gross profit, Microsoft shows strong performance with high profitability and revenue growth compared to industry peers.
This article was generated by Benzinga's automated content engine and reviewed by an editor.
