Investigating Microsoft's Standing In Software Industry Compared To Competitors

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In the dynamic and cutthroat world of business, conducting thorough company analysis is essential for investors and industry experts. In this article, we will undertake a comprehensive industry comparison, evaluating Microsoft MSFT and its primary competitors in the Software industry. By closely examining key financial metrics, market position, and growth prospects, our aim is 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 12.54 13.48 8.93% $33.55 $43.35 17.03%
Oracle Corp 32.74 60.66 6.65 50.61% $5.3 $9.41 7.11%
ServiceNow Inc 81 19.21 16.51 4.41% $0.56 $2.08 24.19%
Palo Alto Networks Inc 45.01 22.57 14.16 6.32% $0.33 $1.47 15.33%
CrowdStrike Holdings Inc 925.27 36.13 27.30 2.48% $0.12 $0.64 32.63%
Gen Digital Inc 25.70 7.03 4.15 5.81% $0.49 $0.78 2.11%
Monday.Com Ltd 596.88 13.99 15.41 0.85% $-0.0 $0.19 33.69%
Dolby Laboratories Inc 41.26 3.17 6.16 4.1% $0.13 $0.33 -3.02%
Qualys Inc 33.93 13.37 9.66 10.29% $0.05 $0.12 11.57%
CommVault Systems Inc 29.50 17.27 5.95 55.72% $0.02 $0.18 9.74%
Teradata Corp 77.76 58.49 1.82 21.16% $0.07 $0.28 -2.31%
N-able Inc 83.47 3.26 5.37 1.05% $0.03 $0.1 13.96%
Progress Software Corp 32.63 4.73 3.17 4.91% $0.06 $0.15 12.46%
SolarWinds Corp 199.17 1.56 2.60 1.14% $0.07 $0.17 3.94%
Average 169.56 20.11 9.15 12.99% $0.56 $1.22 12.42%

By conducting a comprehensive analysis of Microsoft, the following trends become evident:

  • The stock's Price to Earnings ratio of 37.0 is lower than the industry average by 0.22x, suggesting potential value in the eyes of market participants.

  • Considering a Price to Book ratio of 12.54, which is well below the industry average by 0.62x, the stock may be undervalued based on its book value compared to its peers.

  • The Price to Sales ratio of 13.48, which is 1.47x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.

  • The company has a lower Return on Equity (ROE) of 8.93%, which is 4.06% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.

  • Compared to its industry, the company has higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $33.55 Billion, which is 59.91x above the industry average, indicating stronger profitability and robust cash flow generation.

  • The gross profit of $43.35 Billion is 35.53x above that of its industry, highlighting stronger profitability and higher earnings from its core operations.

  • With a revenue growth of 17.03%, which surpasses the industry average of 12.42%, the company is demonstrating robust sales expansion and gaining market share.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio assesses the extent to which a company relies on borrowed funds compared to its 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.

In light of the Debt-to-Equity ratio, a comparison between Microsoft and its top 4 peers reveals the following information:

  • Microsoft is in a relatively stronger financial position compared to its top 4 peers, as evidenced by its lower debt-to-equity ratio of 0.32.

  • This implies that the company relies less on debt financing and has a more favorable balance between debt and equity.

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 margins indicate strong operational efficiency. The high revenue growth rate suggests Microsoft is effectively expanding its market presence.

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

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