Industry Comparison: Evaluating Microsoft Against Competitors In Software Industry

In the fast-paced and highly competitive business world of today, conducting thorough company analysis is essential for investors and industry observers. In this article, we will conduct an extensive industry comparison, evaluating Microsoft MSFT in relation to its major competitors in the Software industry. Through a detailed examination of key financial metrics, market standing, and growth prospects, our objective is to provide valuable insights and illuminate 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).

By closely examining Microsoft, we can identify the following trends:

• With a Price to Earnings ratio of 36.89, which is 0.43x less than the industry average, the stock shows potential for growth at a reasonable price, making it an interesting consideration for market participants.

• With a Price to Book ratio of 11.02, significantly falling below the industry average by 0.66x, it suggests undervaluation and the possibility of untapped growth prospects.

• With a relatively high Price to Sales ratio of 13.2, which is 1.32x the industry average, the stock might be considered overvalued based on sales performance.

• The company has a lower Return on Equity (ROE) of 8.27%, which is 0.43% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.

• The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $40.71 Billion is 43.77x above the industry average, highlighting stronger profitability and robust cash flow generation.

• The gross profit of $48.15 Billion is 26.03x above that of its industry, highlighting stronger profitability and higher earnings from its core operations.

• With a revenue growth of 13.27%, which is much lower than the industry average of 15.7%, the company is experiencing a notable slowdown in sales expansion.

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.

When assessing Microsoft against its top 4 peers using the Debt-to-Equity ratio, the following comparisons can be made:

• 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 0.19.

• 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 ratio is low compared to peers, indicating potential undervaluation. The PB ratio is also low, suggesting a possible bargain opportunity. However, the PS ratio is high, signaling rich valuation based on revenue. In terms of ROE, Microsoft shows lower profitability compared to peers. The high EBITDA and gross profit levels reflect strong operational performance, while the low revenue growth implies slower expansion compared to industry counterparts.

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