SAP (XTRA:SAP): Exploring Valuation After Recent Share Price Pullback and Sector Sentiment Shift

SAP (XTRA:SAP) shares edged up slightly today, continuing a bumpy few weeks for the German software giant. Investors are keeping a close eye on SAP's performance and valuation in light of the recent shift in sentiment across European tech stocks.

See our latest analysis for SAP.

SAP’s share price has slid more than 13% so far this year, with last week’s 5% drop highlighting some cooling momentum after a strong run-up in prior years. Still, despite this recent pullback, the stock’s three-year total shareholder return remains impressive at over 100%. This serves as a reminder to investors of how quickly sentiment can shift for established tech names.

If you’re interested in what else is gaining traction in the sector, you might want to check out See the full list for free..

With SAP now trading nearly 40% below the average analyst price target, some investors may wonder if this recent weakness offers an attractive entry point or if the market is already factoring in its future growth potential.

Most Popular Narrative: 16.9% Undervalued

Closing at €206.60 versus an estimated fair value of €248.62, SAP is attracting attention for what some see as a meaningful discount. According to Tokyo, this valuation case revolves around forecasts of renewed margin expansion and the aftermath of SAP’s years-long business transition.

Profit Margin: 18% (currently at 12.3%). The transition to cloud was very cost intensive, which kept margins below 10% for the last three years. Before that, SAP ranged between 15% and 20% profit margin. Even 20% could be reached in the long run.

Read the complete narrative.

Want to know what’s pushing SAP’s price target up? This narrative is built on forecasts of margin recovery and a premium profit multiple. Curious which financial levers are driving this story? Uncover the surprises shaping this valuation inside the full narrative.

Result: Fair Value of €248.62 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, stiff competition in cloud software and possible execution missteps on AI integration could affect SAP’s outlook despite strong fundamentals.

Find out about the key risks to this SAP narrative.

Another View: Relative Valuation Tells a Different Story

Looking through the lens of the price-to-earnings ratio, SAP appears expensive next to its European software peers, trading at 34x earnings while the industry sits at 25.6x and its peer group at 29.9x. However, it is actually below the fair ratio of 39.7x, suggesting there is still room for optimism if the market shifts its expectations. But does paying a premium for SAP introduce extra risk for new investors, or does its market leadership justify the multiple?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own SAP Narrative

If you have a different perspective or enjoy digging into the numbers yourself, you can quickly craft your own investment narrative in just a few minutes. 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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