Contrasting Microsoft (NASDAQ:MSFT) and Pegasystems (NASDAQ:PEGA)

Microsoft (NASDAQ:MSFT) and Pegasystems (NASDAQ:PEGA) are both computer and technology companies, but which is the better business? We will compare the two businesses based on the strength of their valuation, risk, earnings, profitability, institutional ownership, dividends and analyst recommendations.

Earnings & Valuation

This table compares Microsoft and Pegasystems”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Microsoft	$281.72 billion	10.43	$101.83 billion	$15.99	24.74
Pegasystems	$1.75 billion	4.11	$393.44 million	$2.13	19.93

Microsoft has higher revenue and earnings than Pegasystems. Pegasystems is trading at a lower price-to-earnings ratio than Microsoft, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Microsoft has a beta of 1.1, meaning that its stock price is 10% more volatile than the S&P 500. Comparatively, Pegasystems has a beta of 1.06, meaning that its stock price is 6% more volatile than the S&P 500.

Insider & Institutional Ownership

71.1% of Microsoft shares are owned by institutional investors. Comparatively, 46.9% of Pegasystems shares are owned by institutional investors. 0.0% of Microsoft shares are owned by insiders. Comparatively, 49.7% of Pegasystems shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Microsoft and Pegasystems’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Microsoft	39.04%	32.34%	18.49%
Pegasystems	22.54%	38.86%	18.27%

Analyst Ratings

This is a summary of current ratings for Microsoft and Pegasystems, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Microsoft	0	4	40	2	2.96
Pegasystems	0	2	9	1	2.92

Microsoft currently has a consensus price target of $591.95, indicating a potential upside of 49.65%. Pegasystems has a consensus price target of $67.60, indicating a potential upside of 59.25%. Given Pegasystems’ higher probable upside, analysts plainly believe Pegasystems is more favorable than Microsoft.

Dividends

Microsoft pays an annual dividend of $3.64 per share and has a dividend yield of 0.9%. Pegasystems pays an annual dividend of $0.12 per share and has a dividend yield of 0.3%. Microsoft pays out 22.8% of its earnings in the form of a dividend. Pegasystems pays out 5.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Microsoft has raised its dividend for 23 consecutive years. Microsoft is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Microsoft beats Pegasystems on 14 of the 18 factors compared between the two stocks.

About Microsoft

Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services. This segment also provides LinkedIn; and dynamics business solutions, including Dynamics 365, a set of intelligent, cloud-based applications across ERP, CRM, power apps, and power automate; and on-premises ERP and CRM applications. The Intelligent Cloud segment offers server products and cloud services, such as azure and other cloud services; SQL and windows server, visual studio, system center, and related client access licenses, as well as nuance and GitHub; and enterprise services including enterprise support services, industry solutions, and nuance professional services. The More Personal Computing segment offers Windows, including windows OEM licensing and other non-volume licensing of the Windows operating system; Windows commercial comprising volume licensing of the Windows operating system, windows cloud services, and other Windows commercial offerings; patent licensing; and windows Internet of Things; and devices, such as surface, HoloLens, and PC accessories. Additionally, this segment provides gaming, which includes Xbox hardware and content, and first- and third-party content; Xbox game pass and other subscriptions, cloud gaming, advertising, third-party disc royalties, and other cloud services; and search and news advertising, which includes Bing, Microsoft News and Edge, and third-party affiliates. The company sells its products through OEMs, distributors, and resellers; and directly through digital marketplaces, online, and retail stores. The company was founded in 1975 and is headquartered in Redmond, Washington.

About Pegasystems

Pegasystems Inc. develops, markets, licenses, hosts, and supports enterprise software in the United States, rest of the Americas, the United Kingdom, rest of Europe, the Middle East, Africa, and the Asia-Pacific. The company provides Pega Infinity, a software portfolio comprising of Pega Customer Decision Hub, a real-time AI-powered decision engine to enhance customer acquisition and experiences across inbound, outbound, and paid media channels; Pega Customer Service to anticipate customer needs, connect customers to people and systems, and automate customer interactions to evolve the customer service experience, as well as to allow enterprises to deliver interactions across channels and enhance employee productivity; and Pega Platform, an intelligent automation software for increasing efficiency of clients’ processes and workflows. It also offers Situational Layer Cake that organizes logic into layers that map to the unique dimensions of a client’s business, such as customer types, lines of business, geographies, etc.; Pega Express Methodology and low code that connects enterprise data and systems to customer experience channels; Pega Cloud that allows clients to develop, test, and deploy applications; Pega Catalyst, which helps clients to transform and prototype their customer journeys; Pega Academy, which offers instructor-led and online training to its employees, clients, and partners; and global service assurance and client support services. It primarily markets its software and services to financial services, healthcare, communications and media, government, insurance, manufacturing and high tech, and consumer services markets through a direct sales force, as well as partnerships with technology providers and application developers. Pegasystems Inc. was incorporated in 1983 and is headquartered in Cambridge, Massachusetts.