Analyzing Microsoft In Comparison To Competitors In Software Industry

In today's rapidly changing and highly competitive business world, it is imperative for investors and industry observers to carefully assess companies before making investment choices. In this article, we will undertake a comprehensive industry comparison, evaluating Microsoft MSFT vis-à-vis its key competitors in the Software industry. Through a detailed analysis of important financial indicators, market standing, and growth potential, our goal 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 closely studying Microsoft, we can observe the following trends:

• The Price to Earnings ratio of 35.2 is 0.27x lower than the industry average, indicating potential undervaluation for the stock.

• The current Price to Book ratio of 11.02, which is 0.56x the industry average, is substantially lower than the industry average, indicating potential undervaluation.

• The stock's relatively high Price to Sales ratio of 12.53, surpassing the industry average by 1.14x, may indicate an aspect of overvaluation in terms of sales performance.

• The company has a lower Return on Equity (ROE) of 8.87%, which is 4.79% below the industry average. This indicates potential inefficiency in utilizing equity to generate profits, which could be attributed to various factors.

• With higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $38.23 Billion, which is 63.72x above the industry average, the company demonstrates stronger profitability and robust cash flow generation.

• Compared to its industry, the company has higher gross profit of $45.49 Billion, which indicates 35.54x above the industry average, indicating stronger profitability and higher earnings from its core operations.

• With a revenue growth of 16.04%, which surpasses the industry average of 11.24%, the company is demonstrating robust sales expansion and gaining market share.

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 light of the Debt-to-Equity ratio, a comparison between Microsoft and its top 4 peers reveals the following information:

• In terms of the debt-to-equity ratio, Microsoft has a lower level of debt compared to its top 4 peers, indicating a stronger financial position.

• This implies that the company relies less on debt financing and has a more favorable balance between debt and equity with a lower debt-to-equity ratio of 0.21.

Key Takeaways

For Microsoft in the Software industry, the PE ratio is low compared to peers, indicating potential undervaluation. The PB ratio is also low, suggesting a possible bargain opportunity. However, the PS ratio is high, signaling rich valuation based on revenue. In terms of ROE, Microsoft shows lower profitability compared to peers. The high EBITDA and gross profit levels reflect strong operational performance, while the high revenue growth indicates a robust top-line expansion.

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