To achieve average annual stock market performance of 9.0% over the next 6 years, SAP SE shares will need to reach $331. To achieve Upper quartile performance, SAP SE’s stock price will need to reach $389 by 2029. What is the market’s view of SAP SE’s future operating performance as reflected in the current price of $197?
Executive Summary
- Key SAP SE characteristics: above average expected growth, above average financial strength, instability, and low profitability.
- High valuation, leading shareholder returns. Current valuation levels are high relative to the SAP SE Peer Group. Recent market returns have significantly outperformed the SAP SE Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, SAP SE shares should reach a level of $150 by 2029 — an -3.0% per year total shareholder return. A 2029 stock price of $331 would reflect median performance and a price of $389 would be required to reach upper quartile performance.
- SAP SE’s past growth is slightly below average. Historical growth has been below average relative to the SAP SE Peer Group and forecasted growth is relatively high. Equity Growth has been superior. EPS Growth, and Revenue Growth have lagged. SAP SE’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. SAP SE’s consensus growth expectations are lower than historical growth.
- Profitability is only average. The company has below average cash and will have to work to generate attractive investment opportunities and improve valuation.
- SAP SE’s risk profile is neutral. Overall variability has been very low with very low revenue variability, relatively low E.P.S. variability, and very high stock price volatility. Financial Strength is only average and earnings’ expectations are very low. The debt/capital ratio has declined very significantly.
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