In-Depth Analysis: Microsoft Versus Competitors In Software Industry

In the fast-paced 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 (NASDAQ:MSFT) in comparison to its major competitors within the Software industry. By analyzing crucial 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).

By closely studying Microsoft, we can observe the following trends:

• A Price to Earnings ratio of 36.29 significantly below the industry average by 0.33x suggests undervaluation. This can make the stock appealing for those seeking growth.

• The current Price to Book ratio of 10.71, which is 0.83x the industry average, is substantially lower than the industry average, indicating potential undervaluation.

• The Price to Sales ratio of 13.12, which is 1.08x 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 0.97% above the industry average, highlighting efficient use of equity to generate profits.

• The company has higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $44.43 Billion, which is 57.7x above the industry average, indicating stronger profitability and robust cash flow generation.

• Compared to its industry, the company has higher gross profit of $52.43 Billion, which indicates 35.19x above the industry average, indicating stronger profitability and higher earnings from its core operations.

• With a revenue growth of 18.1%, which is much lower than the industry average of 60.28%, the company is experiencing a notable slowdown in sales expansion.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio is a measure that indicates the level of debt a company has taken on relative to the value of its assets net of liabilities.

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:

• When comparing the debt-to-equity ratio, Microsoft is in a stronger financial position compared to its top 4 peers.

• The company has a lower level of debt relative to its equity, indicating a more favorable balance between the two with a lower debt-to-equity ratio of 0.18.

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. On the other hand, the high ROE, EBITDA, and gross profit indicate strong profitability and operational efficiency, while the low revenue growth suggests slower expansion compared to industry peers.

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