Comparing Microsoft With Industry Competitors In Software Industry

In today's fast-paced and highly competitive business world, it is crucial for investors and industry followers to conduct comprehensive company evaluations. In this article, we will delve into an extensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) in relation to its major competitors in the Software industry. By closely examining key financial metrics, market standing, and growth prospects, our objective is to provide valuable insights and highlight 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 carefully studying Microsoft, we can deduce the following trends:

• The Price to Earnings ratio of 37.38 is 0.33x lower than the industry average, indicating potential undervaluation for the stock.

• With a Price to Book ratio of 11.03, significantly falling below the industry average by 0.84x, it suggests undervaluation and the possibility of untapped growth prospects.

• Based on its sales performance, the stock could be deemed undervalued with a Price to Sales ratio of 13.51, which is 0.95x the industry average.

• The Return on Equity (ROE) of 8.19% is 1.39% above the industry average, highlighting efficient use of 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 57.7x above the industry average, indicating stronger profitability and robust cash flow generation.

• 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.

• The company's revenue growth of 18.1% is significantly below the industry average of 58.94%. This suggests a potential struggle in generating increased sales volume.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio provides insights into the proportion of debt a company has in relation to its equity and asset value.

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 evaluating Microsoft against its top 4 peers in terms of the Debt-to-Equity ratio, the following observations arise:

• Microsoft demonstrates a stronger financial position compared to its top 4 peers in the sector.

• With a lower debt-to-equity ratio of 0.18, the company relies less on debt financing and maintains a healthier balance between debt and equity, which can be viewed positively by investors.

Key Takeaways

For Microsoft in the Software industry, the low PE, PB, and PS ratios suggest the company may be undervalued compared to its peers. On the other hand, the high ROE, EBITDA, and gross profit indicate strong profitability and operational efficiency. The low revenue growth may be a concern for future performance compared to industry peers.

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