SAP SAP
What does SAP do?
SAP is one of the world's largest providers of enterprise software and is headquartered in Germany. Its offering ranges from ERP systems for finance, procurement, manufacturing and supply chain (SAP S/4HANA) to human capital management (SuccessFactors) and spend management, as well as solutions for customer relationship management, analytics and planning. This is complemented by the Business Technology Platform, on which customers and partners develop, integrate and automate applications, as well as by AI capabilities and the Business Network, which connects business partners.
SAP earns its money mainly from cloud subscriptions, software licenses and maintenance, as well as from consulting and support services. Its customers include large corporations, but also mid-sized companies and public-sector organizations from almost all industries. Competitively, SAP benefits from its deep embedding in business-critical processes, high switching costs and a large ecosystem of partners and developers. Its competitors include Oracle, Microsoft, Salesforce and Workday, as well as specialized cloud providers.
Score profile
Rank vs. Software - Application (71 companies). 10 = top of the group, 5 = middle. Calculated from the metrics below, without AI.
Metrics compared with the industry
On profitability and quality, SAP ranks above average in the group Software - Application (6.9/10). On growth, the company ranks in the middle in the group Software - Application (5.8/10). On valuation (higher = cheaper), the stock ranks below average in the group Software - Application (2.6/10). On financial strength, SAP ranks in the middle in the group Software - Application (4.8/10).
| Metric | Stock | Group median | Ranking |
|---|---|---|---|
| Forward P/E | 24.6x | 18.0x | better than 21 % |
| Trailing P/E | 29.1x | 32.7x | better than 54 % |
| PEG ratio | 1.8x | 1.4x | better than 36 % |
| Price/sales | 6.9x | 4.4x | better than 21 % |
| Revenue growth | 13.2% | 10.8% | better than 63 % |
| Earnings growth | 13.4% | 9.4% | better than 54 % |
| Gross margin | 73.6% | 71.8% | better than 56 % |
| Operating margin | 29.5% | 15.7% | better than 87 % |
| Net margin | 20.4% | 12.3% | better than 74 % |
| Return on equity | 18.2% | 13.2% | better than 61 % |
| Debt/equity | 22.8% | 46.9% | better than 66 % |
| Current ratio | 1.2x | 1.2x | better than 46 % |
| Free cash flow yield | 3.7% | 5.3% | better than 32 % |
| Dividend yield | 1.3% | 1.1% | – |
| Payout ratio | 36.5% | 31.2% | – |
| Beta | 0.70 | 0.96 | – |
Valuation: what is SAP worth?
Two valuation approaches – a discounted cash flow model and a valuation at the industry’s median multiples – give SAP a model range of 171.05 USD to 387.85 USD per share.
12 analysts, average rating “Buy”, average price target 284.50 USD (+21.6%).
The full DCF matrix, the reverse DCF (what growth the price implies) and scenarios are part of the Pro analysis.
What the business depends on
- Revenue depends largely on existing customers moving from on-premises software to the cloud and on recurring subscription revenue.
- High switching costs and integration into business-critical processes secure long-term customer relationships and stable maintenance and subscription revenue.
- Cross-selling of modules, platform services and AI capabilities to the existing customer base drives revenue and profitability.
Risks
- The shift to cloud models delays revenue recognition and can create planning uncertainty if customers hold back or run into migration problems.
- Competitors with strong cloud and AI offerings could gain market share or increase pricing pressure.
- Fluctuating IT budgets during economic downturns, as well as currency effects from the global business, weigh on orders and earnings.
What to look for with SAP
Cloud backlog is particularly informative, as it shows contractually secured future subscription revenue and reflects the success of the transition to the cloud model.