Comparing Microsoft With Industry Competitors In Software Industry

Amidst today's fast-paced and highly competitive business environment, it is crucial for investors and industry enthusiasts to conduct comprehensive company evaluations. In this article, we will delve into an extensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) in comparison to its major competitors within the Software industry. By analyzing critical 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).

Upon analyzing Microsoft, the following trends can be observed:

• The stock's Price to Earnings ratio of 38.69 is lower than the industry average by 0.53x, suggesting potential value in the eyes of market participants.

• Considering a Price to Book ratio of 11.42, which is well below the industry average by 0.73x, the stock may be undervalued based on its book value compared to its peers.

• The Price to Sales ratio of 13.98, which is 1.81x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.

• The Return on Equity (ROE) of 8.19% is 0.85% below the industry average, suggesting 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 $44.43 Billion, which is 61.71x above the industry average, indicating stronger profitability and robust cash flow generation.

• The gross profit of $52.43 Billion is 35.91x above that of its industry, highlighting stronger profitability and higher earnings from its core operations.

• With a revenue growth of 18.1%, which surpasses the industry average of 13.38%, the company is demonstrating robust sales expansion and gaining market share.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio helps evaluate the capital structure and financial leverage 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:

• Among its top 4 peers, Microsoft has a stronger financial position with a lower debt-to-equity ratio of 0.18.

• This indicates that the company relies less on debt financing and maintains a more favorable balance between debt and equity, which can be viewed positively by 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 market values its sales more highly. In terms of ROE, Microsoft's performance is lower than its peers, while its high EBITDA and gross profit margins indicate strong operational efficiency. Additionally, the high revenue growth suggests potential for future expansion and market share gains.

This article was generated by Benzinga's automated content engine and reviewed by an editor.