Assessing Microsoft's Performance Against Competitors In Software Industry
This article evaluates Microsoft's performance in the software industry against major competitors. Key financial metrics indicate that Microsoft is undervalued based on its Price to Earnings and Price to Book ratios, while its Price to Sales ratio suggests potential overvaluation. The company shows strong profitability with high EBITDA and gross profit, but faces declining revenue growth. Additionally, Microsoft's lower debt-to-equity ratio indicates a stronger financial position compared to peers. Overall, the analysis highlights both growth potential and challenges for Microsoft in the competitive landscape.
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).
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| Microsoft Corp | 30.07 | 9.16 | 10.65 | 8.17% | $36.79 | $47.83 | 12.27% |
| Oracle Corp | 32.21 | 23 | 7.03 | 19.27% | $5.89 | $9.94 | 6.4% |
| ServiceNow Inc | 113.17 | 16.63 | 14.69 | 4.06% | $0.62 | $2.33 | 21.34% |
| Palo Alto Networks Inc | 93.32 | 17.15 | 13.66 | 4.35% | $0.41 | $1.66 | 14.29% |
| Fortinet Inc | 39.58 | 46.04 | 11.59 | 43.82% | $0.66 | $1.35 | 17.31% |
| Gen Digital Inc | 25.49 | 7.45 | 4.18 | 7.48% | $0.45 | $0.79 | 4.01% |
| Monday.Com Ltd | 376.82 | 11.51 | 12.60 | 2.3% | $0.07 | $0.24 | 32.29% |
| Dolby Laboratories Inc | 28.76 | 2.98 | 5.74 | 2.72% | $0.11 | $0.32 | 13.13% |
| CommVault Systems Inc | 40.23 | 23.37 | 7.32 | 3.9% | $0.02 | $0.21 | 21.13% |
| Qualys Inc | 26.54 | 9.43 | 7.59 | 9.49% | $0.05 | $0.13 | 10.11% |
| SolarWinds Corp | 28.77 | 2.28 | 4.03 | 5.26% | $0.07 | $0.19 | 6.14% |
| Progress Software Corp | 45.62 | 5.77 | 3.19 | 2.51% | $0.07 | $0.19 | 28.88% |
| Teradata Corp | 18.36 | 15.38 | 1.20 | 19.38% | $0.06 | $0.24 | -10.5% |
| Rapid7 Inc | 63.95 | 92.39 | 1.91 | -25.97% | $0.02 | $0.15 | 5.36% |
| Average | 71.76 | 21.03 | 7.29 | 7.58% | $0.65 | $1.36 | 13.07% |
By closely examining Microsoft, we can identify the following trends:
A Price to Earnings ratio of 30.07 significantly below the industry average by 0.42x suggests undervaluation. This can make the stock appealing for those seeking growth.
With a Price to Book ratio of 9.16, significantly falling below the industry average by 0.44x, it suggests undervaluation and the possibility of untapped growth prospects.
The Price to Sales ratio of 10.65, which is 1.46x the industry average, suggests the stock could potentially be overvalued in relation to its sales performance compared to its peers.
With a Return on Equity (ROE) of 8.17% that is 0.59% above the industry average, it appears that the company exhibits efficient use of equity to generate profits.
The company has higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $36.79 Billion, which is 56.6x above the industry average, indicating stronger profitability and robust cash flow generation.
The company has higher gross profit of $47.83 Billion, which indicates 35.17x above the industry average, indicating stronger profitability and higher earnings from its core operations.
The company is witnessing a substantial decline in revenue growth, with a rate of 12.27% compared to the industry average of 13.07%, which indicates a challenging sales environment.
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.
By evaluating Microsoft against its top 4 peers in terms of the Debt-to-Equity ratio, the following observations arise:
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 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. On the other hand, the high ROE, EBITDA, and gross profit indicate strong profitability and operational efficiency, while the low revenue growth suggests slower expansion compared to industry peers.
This article was generated by Benzinga's automated content engine and reviewed by an editor.