Evaluating Microsoft Against Peers In Software Industry

In today's rapidly changing and highly competitive business world, it is vital for investors and industry enthusiasts to carefully assess companies. In this article, we will perform a comprehensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) against its key competitors in the Software industry. By analyzing important financial metrics, market position, and growth prospects, we aim 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).

Through a thorough examination of Microsoft, we can discern the following trends:

• At 38.41, the stock's Price to Earnings ratio is 0.3x less than the industry average, suggesting favorable growth potential.

• With a Price to Book ratio of 11.34, significantly falling below the industry average by 0.83x, 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 13.88, which is 0.81x the industry average.

• The Return on Equity (ROE) of 8.19% is 1.13% 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 56.96x above the industry average, indicating stronger profitability and robust cash flow generation.

• With higher gross profit of $52.43 Billion, which indicates 34.72x 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 64.8%. This indicates a potential fall in the company's sales performance.

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.

In terms of the Debt-to-Equity ratio, Microsoft stands in comparison with its top 4 peers, leading to the following comparisons:

• 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 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.