Microsoft Corporation (MSFT)vs SHOP Holdings, Inc. (SHOP)

Quick verdict

Microsoft Corporation (MSFT) and SHOP Holdings, Inc. (SHOP) appeal to different investors. On our six-factor framework, MSFT scores 2.5 and SHOP scores 3.5. neither clearly looks cheaper on the multiples that matter, while MSFT grows faster and MSFT earns higher returns on capital. Overall, SHOP 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 SHOP Holdings, Inc. sits in Beverages (Consumer Defensive). The two operate in different sectors, so cyclicality and end-market exposure differ — factor that into any portfolio overlap. MSFT carries a beta of 1.27 versus 0.64 for SHOP, meaning MSFT has historically been the more volatile of the two.

Valuation

On valuation, neither clearly is the cheaper stock. MSFT trades on a forward P/E of 16.83 and EV/EBITDA of 36.41, against 16.83 and 10.2 for SHOP. Price-to-sales is 15.59 vs 3.26, and free-cash-flow yield is 5.6% vs 2.0%. 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 13.4% over three years with EPS growth of 12.8%, while SHOP has delivered 4.0% revenue and 3.5% 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 18.8% operating margin, 47.0% return on equity and 31.5% return on invested capital. SHOP posts 15.5%, 47.7% and 8.3% 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

SHOP has the safer balance sheet. MSFT carries net-debt/EBITDA of 1.00x with a current ratio of 1.35, versus 0.69x and 3.24 for SHOP. 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 42.9% for SHOP; on a three-year annualised basis it is 4.7% vs 16.6%. MSFT yields 0.0% and SHOP yields 1.4%. 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 SHOP 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: SHOP
• Quality: MSFT

Frequently asked questions

Is MSFT or SHOP the better buy right now?

Neither is universally "better." MSFT scores 2.5 and SHOP scores 3.5 on our six-factor framework. neither clearly is cheaper, MSFT grows faster, and MSFT is higher quality — so the right pick depends on your objective.

Which stock is cheaper, MSFT or SHOP?

neither clearly is the cheaper stock across forward P/E (16.83 vs 16.83), EV/EBITDA (36.41 vs 10.2) and price-to-sales (15.59 vs 3.26).

Which has grown faster, MSFT or SHOP?

MSFT has the stronger growth profile, with three-year revenue CAGR of 13.4% for MSFT versus 4.0% for SHOP.

Which stock pays a bigger dividend?

MSFT yields 0.0% and SHOP yields 1.4%, so SHOP is the stronger income choice.

Related comparisons

• AAPL vs MSFT
• AAPL vs SHOP
• AMD vs MSFT
• AMD vs SHOP
• AMZN vs MSFT
• MSFT vs AVGO