Under the leadership of Bill McDermott, SAP has now developed into the most valuable German company with a market value of approximately 150 billion euros. The second-ranked DAX company is Linde with a market capitalization of 100 billion euros, followed by Siemens (99) and Allianz (91).
Under his leadership, SAP achieved sales of 24.7 billion euros and net profit of 5.7 billion euros in the 2018 fiscal year. Over the past 5 years, earnings per share have grown 5.8% annually. In view of these results, for investors, loyalty to SAP stock is undoubtedly a good decision. Especially considering that the gap with the following market value is very large.
Bill McDermott recently left SAP and worked for the US software company Servicenow. Servicenow produces software for e-commerce. Anyone who has seen the recent growth rates of Black Friday and Cyber Monday will find that it will still be dormant in the next few years.
Traditional retail is struggling worldwide, while online retail is growing at a double-digit rate in industrialized countries. However, Servicenow is much smaller than SAP. Sales were 3.2 billion U.S. dollars and net income was 35 million U.S. dollars. The market value reached 52 billion US dollars, about one-third of SAP.
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In return, Servicenow can show a considerable growth rate. In the past five years, earnings per share have increased by an average of 22% and sales have increased by 43%. By the beginning of December, this share had increased by nearly 56% in 2019. This year, earnings per share are expected to grow by 78%. In the next five years, an average of nearly 30% per year.
This dynamic growth naturally has its costs. The estimated profit for the next 12 months has a P/E ratio of 66. The SAP is 22. Therefore, Servicenow is more dynamic than SAP. Correspondingly, the risk is higher: If the economic weakness is not only temporary, but not necessarily a recession, SAP’s price-to-earnings ratio may be reduced by a third.
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Servicenow’s situation may be different. If there is a sustained slowdown in growth (which is not necessarily a recession), the price-to-earnings ratio may quickly fall from 67 to a price-to-earnings ratio of about 20. This means that the current stock price is about $280, and then it may fall to $80.
As a stock investor, should you now follow Bill McDermott, the tried-and-tested and charismatic company leader from SAP to Servicenow?
If there is another very significant change in leadership, it will be worth it: no one who sold Fresenius stock after Ulf Mark Schneider left and bought Nestlé stock should not regret it . Since then, Fresenius’ share price has fallen sharply, while Nestlé has risen 29% this year alone. However, at that time, Schneider had changed from a large company in accordance with German standards to a medium-sized international company, but it was only a medium-sized company internationally.
Investors who follow Ulf Mark Schneider to Nestlé benefit from it
Contrary to Bill McDermott. However, smaller companies are more dynamic than previous large companies. We believe that anyone who believes in the long-term dynamic development of online trading, Servicenow’s strong position in the business, and Bill McDermott’s convincing management performance and is willing to take higher risks can consider swaps. Since the current economic lights, especially those in the United States, are all green, the market development should also be beneficial in the foreseeable future. But be careful: Whether Servicenow, like SAP, will maintain a top-notch growth level for decades, is unclear.
The author is the managing partner of Dr. Dr., an asset management company unrelated to the bank. Thilenius GmbH in Stuttgart. The company is controlled by Bafin
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