SAP (XTRA:SAP) shares saw modest movement after the company reported its latest financial results. Quarterly revenue and net income both posted double-digit growth compared to last year. Investors are tracking how these numbers influence SAP’s long-term strategy.
SAP’s share price recently dipped in the short term, with a 7% decline over the last 30 days and a 12.6% drop year-to-date. This reflects some waning near-term momentum despite solid growth results. Still, the longer view appears much more resilient. Three- and five-year total shareholder returns of 104% and 120% indicate that patient investors have been well rewarded.
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With revenue and profits on the rise, but short-term investor sentiment cooling, the question now is whether SAP’s recent pullback unlocks real value for buyers or if the market has already accounted for the company’s future growth.
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Most Popular Narrative: 16% Undervalued
According to "Tokyo," the latest narrative sees SAP’s fair value well above the recent close at €208.55. That sets the backdrop for an in-depth analysis of the assumptions driving this outlook, especially as the company navigates cloud and AI transitions.
Over the next 5 years I calculate with (actual values from 04.05.25, price/shr at 266 EUR): Revenue Growth p.a.: 9% (Currently at 10.7%) because last 10 years average was 6%. I estimate extra 3%, since transition to SaaS is mainly done and gives potential for continuous price increases, which could be justified by further AI features. Profit Margin: 18% (currently at 12.3%) because transition to cloud was very cost intensive, which keep margin during last 3 year below 10%, before that SAP ranged between 15-20% of profit margin. Even 20% could be reached on the long run. Future PE: 40 (currently at 54.2) end 2024 SAP had a PE of 90, this come already down significantly, but with respect to forecasted revenue growth, more than PE of 40 is not reasonable.
Wondering what bold forecasts fuel this potential double-digit upside? The narrative’s valuation isn’t just about optimism, but a set of ambitious assumptions for growth, profit margins, and future earnings multiples. The real surprise is in which numbers get a dramatic upgrade. Curious which financial levers matter most for SAP’s future?
However, the narrative could be upended by setbacks in cloud migration or slower than expected AI adoption, both of which may limit SAP’s revaluation potential.
While the narrative suggests SAP’s shares are undervalued, a different perspective emerges when we use the price-to-earnings ratio. SAP trades at 34.3 times earnings, which is noticeably higher than both the European software industry average of 26.7 and the peer average of 31.5. This premium may reflect confidence in SAP’s growth story, but it also means there is less room for error if future results disappoint. The fair ratio, at 39.7, suggests there is still some headroom. However, being above industry averages can increase valuation risk.
Prefer to chart your own course? Dive into the data, experiment with the numbers, and see what story you uncover. Your custom narrative is only a few minutes away. Do it your way
A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding SAP.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.
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