Microsoft valuation analyzed against software peers
Microsoft's valuation metrics suggest potential undervaluation with a P/E of 23.56 and P/B of 7.09, both below industry averages. However, its revenue growth of 18.3% lags significantly behind the sector average of 61.8%.
*this image is generated using AI for illustrative purposes only.
Microsoft's financial performance and valuation metrics present a mixed picture when compared to key competitors in the software industry. The company demonstrates strong profitability with an EBITDA of $50.28 billion and a gross profit of $56.06 billion, significantly exceeding the industry averages. Despite these operational strengths, its revenue growth of 18.3% falls short of the industry average of 61.8%, indicating potential challenges in expanding sales volume relative to peers.
Valuation Ratios
Microsoft's valuation multiples suggest the stock may be undervalued relative to the sector. The Price to Earnings (P/E) ratio stands at 23.56, while the Price to Book (P/B) ratio is 7.09. Both figures are lower than the industry average, as is the Price to Sales (P/S) ratio of 9.27. These metrics imply potential value for market participants, though the Return on Equity (ROE) of 7.89% is below the industry average, pointing to possible inefficiencies in equity utilization.
Financial Comparison
The following table compares Microsoft's key financial metrics against its industry peers:
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| Microsoft Corp | 23.56 | 7.09 | 9.27 | 7.89% | $50.28 | $56.06 | 18.3% |
| Oracle Corp | 22.73 | 10.16 | 5.73 | 11.88% | $9.65 | $12.51 | 20.63% |
| Palo Alto Networks Inc | 307.84 | 10.43 | 24.58 | -0.96% | $0.18 | $2.03 | 31.15% |
| Fortinet Inc | 63.76 | 121.78 | 17.50 | 48.0% | $0.7 | $1.49 | 20.13% |
| ServiceNow Inc | 62.34 | 9.21 | 7.84 | 3.8% | $0.94 | $2.83 | 22.09% |
| Nebius Group NV | 77.03 | 7 | 60.32 | 10.5% | $0.92 | $0.3 | 683.89% |
| Gen Digital Inc | 16.84 | 6.10 | 3.27 | 20.72% | $0.92 | $1.01 | 27.03% |
| Check Point Software Technologies Ltd | 13.62 | 4.89 | 5.22 | 6.73% | $0.2 | $0.57 | 4.8% |
| UiPath Inc | 19.92 | 3.25 | 3.86 | 1.13% | $0.04 | $0.34 | 17.32% |
| BlackBerry Ltd | 106.40 | 8.31 | 10.92 | 1.14% | $0.02 | $0.12 | 25.64% |
| CommVault Systems Inc | 92.58 | 808.54 | 5.52 | 13.07% | $0.03 | $0.25 | 13.33% |
| Qualys Inc | 28.61 | 9.85 | 8.42 | 8.96% | $0.06 | $0.15 | 9.84% |
| Dolby Laboratories Inc | 19.50 | 1.78 | 3.49 | 3.64% | $0.14 | $0.35 | 7.05% |
| Monday.Com Ltd | 35.23 | 4.56 | 3.23 | 2.8% | $0.02 | $0.31 | 24.45% |
| Teradata Corp | 7.16 | 5.29 | 1.79 | 85.13% | $0.47 | $0.28 | 6.22% |
| A10 Networks Inc | 59.51 | 11.83 | 8.86 | 5.57% | $0.02 | $0.06 | 13.4% |
| Average | 62.2 | 68.2 | 11.37 | 14.81% | $0.95 | $1.51 | 61.8% |
Debt and Financial Health
Microsoft maintains a conservative capital structure with a debt-to-equity ratio of 0.14. This figure is lower than its top four peers, indicating a stronger financial position and less reliance on debt financing. The lower ratio suggests a favorable balance between debt and equity, reducing financial risk associated with the company's capital structure.
Can Microsoft leverage its strong EBITDA and low debt-to-equity ratio to accelerate revenue growth through strategic acquisitions?
What operational changes are required to improve Microsoft's Return on Equity to match the industry average?
Will the market eventually re-rate Microsoft's valuation multiples higher as revenue growth lags behind high-flying peers?
20
Create Custom Screeners 
Access 200+ Pre-built Filters 
Use 50+ Readymade Screener 
