SAP (NYSE: SAP), a market leader in enterprise application software and also one of the largest analytics and business intelligence companies, saw its stock decline by approximately 21% year-to-date, with poor performance. of the broader Nasdaq-100, which remains down approximately 10% until now in 2022. The sell-off was driven by several factors. Although SAP posted a stronger-than-expected set of results in Q4 2021 with both revenue and earnings exceeding consensus, it predicts a decline in operating revenues as well as weaker free cash flow. for 2022 due to the ongoing overhaul of the delivery infrastructure, as it moves the remaining customers who are on legacy infrastructures up to a cloud infrastructure. Separately, there has been a wider sell-off in cloud and software stocks, as the prospect of higher interest rates and tighter monetary policy has also hurt SAP.
That said, we think the SAP stock is a good value at the current market price of approximately $ 111 per share. SAP’s move to the cloud is happening fast, with cloud revenue rising approximately 24% year-over-year in consistent currency terms to approximately 2.61 billion euros ($ 2.86 billion) in Q4 2021, where the company expects between 23% and 26% growth for 2022. Now, although pivoting to the cloud is likely to affect revenue growth, as the initial license sale is being replaced by subscription, there are many long -term benefits of switching for SAP. For one, it makes profits more predictable with a larger mix of repeat sales. The company now classifies about 78% of its sales as highly unpredictable. Moreover, SAP also estimates that the move will help increase its wallet share among customers, as the cloud-based model effectively integrates software with back-end IT infrastructure and operational services, which businesses typically need to keep on-premise models. Furthermore, as the cloud transition continues, investors may appreciate SAP more like a cloud software company. For perspective, at its current market price of approximately $ 111 per share, SAP is trading at nearly 19x consensus revenue in 2022, compared to cloud-only players like Salesforce and ServiceNow, which trade at approximately 45x and 70x forward revenue, respectively.
We value SAP at approximately $ 142 per share, which marks an increase of approximately 30% from the current market price. Check out our SAP Valuation review: Is SAP Stock Expensive or Cheap? for more details. For more information on SAP’s business model, key revenue streams, and how its revenues have been trending, check out our review of SAP Revenue: How SAP Makes Money
What if you’re just looking for a more balanced portfolio instead? Here is a high quality portfolio that has consistently beaten the market since the end of 2016.
| Returns | Mar 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| Returning SAP | -2% | -21% | 28% |
| Return of the S&P 500 | 1% | -7% | 98% |
| Return of Trefis MS Portfolio | 2% | -9% | 259% |
[1] Month-to-date and year-to-date on 3/28/2022
[2] Aggregate total return since the end of 2016
Invest in Trefis Market Beating Portfolio
Show all Trefis Price Estimates
.