Evaluating Microsoft Against Peers 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 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).

When closely examining Microsoft, the following trends emerge:

• The stock's Price to Earnings ratio of 38.9 is lower than the industry average by 0.5x, suggesting potential value in the eyes of market participants.

• The current Price to Book ratio of 11.62, which is 0.72x the industry average, is substantially lower than the industry average, indicating potential undervaluation.

• With a relatively high Price to Sales ratio of 13.92, which is 1.73x the industry average, the stock might be considered overvalued based on sales performance.

• With a Return on Equity (ROE) of 8.27% that is 1.24% below the industry average, it appears that the company exhibits potential inefficiency in utilizing equity to generate profits.

• The company exhibits higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $40.71 Billion, which is 55.77x above the industry average, implying stronger profitability and robust cash flow generation.

• The gross profit of $48.15 Billion is 32.98x above that of its industry, highlighting stronger profitability and higher earnings from its core operations.

• With a revenue growth of 13.27%, which surpasses the industry average of 12.31%, the company is demonstrating robust sales expansion and gaining market share.

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.

When comparing Microsoft with its top 4 peers based on the Debt-to-Equity ratio, the following insights can be observed:

• Compared to its top 4 peers, Microsoft has a stronger financial position indicated by its lower debt-to-equity ratio of 0.19.

• 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 and PB ratios suggest the stock is undervalued compared to peers, indicating potential for growth. However, the high PS ratio implies the stock may be overvalued based on revenue. In terms of ROE, EBITDA, gross profit, and revenue growth, Microsoft shows strong performance and growth potential, outperforming industry peers.

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