Microsoft Corporation (MSFT)vs Eli Lilly and Company (LLY)

Quick verdict

Microsoft Corporation (MSFT) and Eli Lilly and Company (LLY) appeal to different investors. On our six-factor framework, MSFT scores 4 and LLY scores 2. MSFT looks cheaper on the multiples that matter, while MSFT grows faster and MSFT earns higher returns on capital. Overall, MSFT edges this comparison, but the right pick depends on whether you prioritise value, growth, income or balance-sheet safety.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Microsoft Corporation operates in Software - Infrastructure (Technology), while Eli Lilly and Company sits in Drug Manufacturers (Healthcare). The two operate in different sectors, so cyclicality and end-market exposure differ — factor that into any portfolio overlap. MSFT carries a beta of 1.13 versus 1.61 for LLY, meaning LLY has historically been the more volatile of the two.

Valuation

On valuation, MSFT is the cheaper stock. MSFT trades on a forward P/E of 16.83 and EV/EBITDA of 16.6, against 25.73 and 18.53 for LLY. Price-to-sales is 10.1 vs 5.29, and free-cash-flow yield is 5.6% vs 3.4%. A higher multiple is only justified if the company can sustain faster growth or wider margins, which is exactly what the next sections test.

Growth profile

MSFT is the faster grower. MSFT has compounded revenue at 17.8% over three years with EPS growth of 31.4%, while LLY has delivered 13.7% revenue and 16.1% EPS growth. Growth like this is the single biggest driver of long-term returns, but it also tends to come with a richer valuation, so it must be weighed against the multiples above.

Profitability and quality

On profitability and quality, MSFT is stronger. MSFT posts a 46.8% operating margin, 35.4% return on equity and 21.7% return on invested capital. LLY posts 12.2%, 34.6% and 7.9% respectively. Return on invested capital above roughly 15% is a hallmark of a durable competitive advantage, so this metric deserves particular attention.

Balance-sheet risk

LLY has the safer balance sheet. MSFT carries net-debt/EBITDA of 1.00x with a current ratio of 1.28, versus 1.15x and 2.81 for LLY. Lower leverage gives a company more room to invest through a downturn and reduces the risk of dilution or distress.

Price performance and shareholder returns

Over the past year MSFT returned -13.8% against 16.5% for LLY; on a three-year annualised basis it is 4.7% vs 0.6%. MSFT yields 0.8% and LLY yields 0.0%. Past performance never guarantees future results, but the multi-year track record shows how the market has rewarded each business so far.

Which stock fits which investor

For value-oriented investors, MSFT is the better fit on today's multiples. Growth investors will likely prefer MSFT, which is expanding faster. Income investors should lean toward MSFT for its higher shareholder yield, while investors who prize quality-at-a-reasonable-price will favour MSFT for its superior returns on capital. This is a comparison of facts, not a recommendation — your time horizon, risk tolerance and existing holdings should drive the final decision.

• Value: MSFT
• Growth: MSFT
• Income: MSFT
• Quality: MSFT

Frequently asked questions

Is MSFT or LLY the better buy right now?

Neither is universally "better." MSFT scores 4 and LLY scores 2 on our six-factor framework. MSFT is cheaper, MSFT grows faster, and MSFT is higher quality — so the right pick depends on your objective.

Which stock is cheaper, MSFT or LLY?

MSFT is the cheaper stock across forward P/E (16.83 vs 25.73), EV/EBITDA (16.6 vs 18.53) and price-to-sales (10.1 vs 5.29).

Which has grown faster, MSFT or LLY?

MSFT has the stronger growth profile, with three-year revenue CAGR of 17.8% for MSFT versus 13.7% for LLY.

Which stock pays a bigger dividend?

MSFT yields 0.8% and LLY yields 0.0%, so MSFT is the stronger income choice.

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