As of October 19, 2023, SAP SE (SAP, Financial) saw a daily gain of 6.21%, despite a 3-month loss of 5.87%. With an Earnings Per Share (EPS) (EPS) of 4.68, the question arises: is the stock fairly valued? This article aims to answer that question by providing a detailed valuation analysis of SAP SE (SAP). Read on to gain valuable insights into the company's financial health and future prospects.
Company Overview
Founded in 1972 by former IBM employees, SAP SE (SAP, Financial) offers database technology and enterprise resource planning software to businesses worldwide. It serves 440,000 customers across more than 180 countries, with approximately 80% being small- to medium-sized enterprises. With a market cap of $158.50 billion and sales of $32.90 billion, SAP SE's stock price currently stands at $135.53, closely aligned with its GF Value of $133.02, indicating a fair valuation.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed considering three factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price significantly deviates from the GF Value Line, it can indicate whether the stock is overvalued or undervalued, thus influencing its future returns. In the case of SAP SE (SAP, Financial), the stock appears to be fairly valued.
Because SAP SE is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with low financial strength can lead to permanent capital loss. Therefore, it's crucial to assess a company's financial strength before purchasing its shares. SAP SE's cash-to-debt ratio of 1.2 ranks lower than 62.73% of companies in the Software industry, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. SAP SE has been profitable for the past 10 years, with an operating margin of 17.21%, ranking better than 85.84% of companies in the Software industry. However, its 3-year average annual revenue growth rate of 4.4% ranks lower than 59.96% of companies in the industry, indicating a need for improvement in growth.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. SAP SE's ROIC of 4.66 is lower than its WACC of 8.88, indicating a need for improvement in generating value for shareholders.
Conclusion
In conclusion, SAP SE (SAP, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than 64.04% of companies in the Software industry. For more details about SAP SE's financials, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
