Does SAP’s Stock Have An Upside After Recent Rally?

[Updated 04/29/2021] SAP Update

Having grown 45% since the end of 2018, SAP’s stock (NYSE: SAP) has moderate upside potential. SAP, a German multinational corporation which develops enterprise software to manage business operations and customer relations, saw its stock grow from $100 at the end of 2018 to near $144 now, compared to the S&P500 which gained 68% since the end of 2018.  In 2020, the company saw revenues and earnings grow primarily due to the Cloud Subscriptions and Support segment which witnessed a 28% growth in revenues. In Q1 2021, the company saw its revenue grow by 4.7% y-o-y to $7.5 billion led by the Software Licenses segment which grew by 15.2% y-o-y and the Cloud Subscriptions and Support segment which grew by 14.8% y-o-y. The earnings increased to $1.05 compared to $0.75 in the same period of the previous year. We expect the stock to see moderate growth in the near future. Our dashboard ‘Buy or Sell SAP’s Stock‘ has the underlying numbers.

In 2021 we expect SAP’s revenues to rise to €29.6 billion ($35.8 billion). Further, its net income is likely to increase to €5.7 billion ($6.96 billion), bringing its EPS figure to €4.86, which coupled with the P/E multiple of 25.6x and an exchange rate of $1.21 per € will lead to SAP’s valuation at $151, which is 5% above its current market price.

[Updated 02/10/2020] SAP Stock: At $131 Does SAP’s Stock Have Upside?

At the current price of around $131 per share, we believe SAP’s stock (NYSE: SAP) has moderate growth potential in the near term. SAP stock has remained nearly flat since the end of 2019 compared to the S&P 500 which has increased by 21% in the same period. SAP saw revenue rise by 8.7% to $33.3 billion (flat in euro) for 2020. Net income improved due to operational efficiency as the earnings per share went up to $5.29 in 2020 from $3.11 in the previous year.  The company has seen earnings rise over the recent years, while its P/E multiple has fallen slightly. We believe the stock has moderate growth potential in the near term.

The 32% rise in SAP stock price from 2018 to now is justified by a significant rise in earnings during those years. SAP’s revenue rose from $28.3 billion in 2018 to $33.3 billion in 2020. Net Income margin increased from 16.5% in 2018 to 18.8% in 2020. On a per share basis, earnings went up from $3.92 to $5.29 helped by a 1% decrease in shares outstanding.

During the same period, the P/E multiple fell from 25.4x to 24.6x. The P/E improved slightly in 2021 and is currently at 24.8x.

Where Is The Stock Headed?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This, in turn, adversely affected consumption and consumer spending. However, SAP’s revenues and earnings grew in 2020 primarily due to the Cloud segment which witnessed a 28% growth. Software Support segment revenue also grew by 9% for the year.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. 

While SAP’s stock has moved, it is helpful to see how its peers stack up. Check out Apple Stock Comparison With Peers to see how Apple compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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