Comparative Study: Microsoft And Industry Competitors In Software Industry

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).

When analyzing Microsoft, the following trends become evident:

• At 37.78, the stock's Price to Earnings ratio is 0.33x less than the industry average, suggesting favorable growth potential.

• Considering a Price to Book ratio of 11.15, which is well below the industry average by 0.83x, the stock may be undervalued based on its book value compared to its peers.

• The Price to Sales ratio is 13.66, which is 0.94x the industry average. This suggests a possible undervaluation based on sales performance.

• The company has a higher Return on Equity (ROE) of 8.19%, which is 1.39% above the industry average. This suggests efficient use of equity to generate profits and demonstrates profitability and growth potential.

• 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.

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

• The company's revenue growth of 18.1% is significantly lower compared to the industry average of 58.94%. This indicates a potential fall in the company's sales performance.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio measures the financial leverage of a company by evaluating its debt relative 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 terms of the Debt-to-Equity ratio, Microsoft can be assessed by comparing it to its top 4 peers, resulting in the following observations:

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

• This suggests that the company relies less on debt financing and has a more favorable balance between debt and equity, which can be seen as a positive attribute by investors.

Key Takeaways

For Microsoft in the Software industry, the PE, PB, and PS ratios are all low compared to peers, indicating potential undervaluation. On the other hand, Microsoft's high ROE, EBITDA, and gross profit suggest strong profitability and operational efficiency. However, the low revenue growth rate may raise concerns about future performance compared to industry peers.

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