Insights Into Microsoft's Performance Versus Peers In Software Sector

In the ever-changing and fiercely competitive business landscape, conducting thorough company analysis is crucial for investors and industry experts. In this article, we will undertake a comprehensive industry comparison, evaluating Microsoft (NASDAQ:MSFT) and its primary competitors in the Software industry. By closely examining key financial metrics, market position, and growth prospects, our aim is 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).

Company	P/E	P/B	P/S	ROE	EBITDA (in billions)	Gross Profit (in billions)	Revenue Growth
Microsoft Corp	37.37	11.03	13.51	8.19%	$44.43	$52.43	18.1%
Oracle Corp	54.06	32.22	11.71	18.43%	$6.83	$11.16	11.31%
ServiceNow Inc	111.54	16.83	15.39	3.65%	$0.65	$2.49	22.38%
Palo Alto Networks Inc	113.47	15.50	13.97	3.37%	$0.4	$1.67	10.8%
Fortinet Inc	31.11	29.04	9.54	21.88%	$0.56	$1.32	13.64%
Gen Digital Inc	32.81	8.20	4.64	5.83%	$0.58	$0.99	30.26%
Nebius Group NV	74.70	4.25	64.33	16.85%	$0.58	$0.07	624.83%
Monday.Com Ltd	231.70	7.61	8.47	0.14%	$-0.01	$0.27	26.64%
CommVault Systems Inc	98.38	21.47	7.57	6.81%	$0.03	$0.23	25.51%
Dolby Laboratories Inc	27.23	2.72	5.34	1.78%	$0.07	$0.27	9.25%
Qualys Inc	26.51	9.45	7.71	9.4%	$0.06	$0.14	10.32%
BlackBerry Ltd	183	3	4.08	0.26%	$0.01	$0.09	-1.38%
Teradata Corp	18.69	11.34	1.23	5.39%	$0.04	$0.23	-6.42%
Average	83.6	13.47	12.83	7.82%	$0.82	$1.58	64.76%

By thoroughly analyzing Microsoft, we can discern the following trends:

• With a Price to Earnings ratio of 37.37, which is 0.45x less than the industry average, the stock shows potential for growth at a reasonable price, making it an interesting consideration for market participants.

• Considering a Price to Book ratio of 11.03, which is well below the industry average by 0.82x, the stock may be undervalued based on its book value compared to its peers.

• With a relatively high Price to Sales ratio of 13.51, which is 1.05x the industry average, the stock might be considered overvalued based on sales performance.

• The Return on Equity (ROE) of 8.19% is 0.37% above the industry average, highlighting efficient use of equity to generate profits.

• The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $44.43 Billion is 54.18x above the industry average, highlighting stronger profitability and robust cash flow generation.

• Compared to its industry, the company has higher gross profit of $52.43 Billion, which indicates 33.18x above the industry average, indicating stronger profitability and higher earnings from its core operations.

• With a revenue growth of 18.1%, which is much lower than the industry average of 64.76%, the company is experiencing a notable slowdown in sales expansion.

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.

By considering the Debt-to-Equity ratio, Microsoft can be compared to its top 4 peers, leading to the following observations:

• 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 0.18.

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.