In the dynamic and fiercely competitive business environment, conducting a thorough analysis of companies is crucial for investors and industry enthusiasts. In this article, we will perform an extensive industry comparison, evaluating Microsoft MSFT in relation to its major competitors in the Software industry. By closely examining crucial financial metrics, market position, and growth prospects, we aim to offer 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).
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| Microsoft Corp | 36.36 | 12.64 | 12.83 | 10.44% | $31.73 | $40.22 | 12.76% |
| Oracle Corp | 29.35 | 75.55 | 5.77 | 80.28% | $5.16 | $9.2 | 5.43% |
| ServiceNow Inc | 90.76 | 20.06 | 16.99 | 3.43% | $0.45 | $1.79 | 24.96% |
| Palo Alto Networks Inc | 166.06 | 42.94 | 14.15 | 9.91% | $0.35 | $1.41 | 20.13% |
| Fortinet Inc | 41.25 | 615.57 | 9.11 | 163.37% | $0.36 | $1.02 | 16.1% |
| Gen Digital Inc | 10.30 | 6.10 | 3.93 | 6.27% | $0.16 | $0.77 | 26.74% |
| Dolby Laboratories Inc | 42.39 | 3.51 | 6.53 | 0.39% | $0.05 | $0.26 | 4.44% |
| Qualys Inc | 53.74 | 22.59 | 13.85 | 15.51% | $0.05 | $0.12 | 13.09% |
| Teradata Corp | 72.78 | 35.01 | 2.46 | 7.06% | $0.05 | $0.26 | 5.04% |
| N-able Inc | 110.50 | 3.60 | 5.98 | 0.9% | $0.02 | $0.09 | 15.01% |
| Progress Software Corp | 30.75 | 5.33 | 3.58 | 4.42% | $0.06 | $0.14 | 15.72% |
| Average | 64.79 | 83.03 | 8.23 | 29.15% | $0.67 | $1.51 | 14.67% |
By carefully studying Microsoft, we can deduce the following trends:
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The stock's Price to Earnings ratio of 36.36 is lower than the industry average by 0.56x, suggesting potential value in the eyes of market participants.
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Considering a Price to Book ratio of 12.64, which is well below the industry average by 0.15x, the stock may be undervalued based on its book value compared to its peers.
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The Price to Sales ratio of 12.83, which is 1.56x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.
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The Return on Equity (ROE) of 10.44% is 18.71% below the industry average, suggesting potential inefficiency in utilizing equity to generate profits.
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Compared to its industry, the company has higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $31.73 Billion, which is 47.36x above the industry average, indicating stronger profitability and robust cash flow generation.
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With higher gross profit of $40.22 Billion, which indicates 26.64x above the industry average, the company demonstrates stronger profitability and higher earnings from its core operations.
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With a revenue growth of 12.76%, which is much lower than the industry average of 14.67%, the company is experiencing a notable slowdown in sales expansion.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio is a key indicator of a company's financial health and its reliance on debt financing.
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 analyzing Microsoft in relation to its top 4 peers based on the Debt-to-Equity ratio, the following insights can be derived:
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Microsoft demonstrates a stronger financial position compared to its top 4 peers in the sector.
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With a lower debt-to-equity ratio of 0.39, 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
The valuation analysis for Microsoft in the software industry reveals that its PE ratio is low compared to its peers, indicating that the stock may be undervalued. The PB ratio is also low, suggesting that the company's stock price is relatively low compared to its book value. However, the PS ratio is high, indicating that the stock may be overvalued based on its revenue. In terms of profitability, Microsoft's ROE is low, suggesting that the company is not generating significant returns on shareholders' equity. On the other hand, the company's EBITDA and gross profit are high, indicating strong financial performance. Lastly, Microsoft's revenue growth is low, suggesting slower expansion compared to its industry peers.
This article was generated by Benzinga's automated content engine and reviewed by an editor.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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