Not Every Tech Stocks are Equally Strong: SAP
SAP stocks have
lost 30% since the beginning of 2022. The German tech company develops
enterprise software and solutions to manage business operations. For example,
one of its services can be used to
manage all business travel financial activities and related spending. In other
words, it is quite a routine company with a stable and strong cash flow. Once SAP
software is installed on a corporate level it is hard to do without it as it is
deeply integrated into the business core processes. Moreover, SAP is restructuring
its business model around its subscription base and this will allow for cash
flows to be even more predictable and balanced through the financial year. Such
a model is in favourable to Wall Streel investors.
The war in
Ukraine has a 300-million-euro negative effect on SAP business, and it is only
a marginal 1% of the overall revenue base for the company, while its dominance
in the ERP segment is secure. The revenues added 11% year-on-year to 7.08 euros
in Q1 2022. The revenues grew by 6% in Q4 2021.
The company
has made some successful M&A deals, acquiring Qualtrics, a cloud-based
subscription software platform, that delivered +48% revenue in Q1 2022. This
company had a gross margin above 90% in 2021 while SAP’s gross margin was at
70% for the same year.
SAP
management promised to triple its cloud-based business by 2025, and boost
revenues to 22 billion euros, while operational profit is forecasted to grow by
40% from the current 8.4 billion euros. This is a very extensive growth for the
company that has a high P/E ratio at 17. The company may not perform very high
growth rates as its younger tech sector peers, but it may certainly recover to
new all-time highs in the long-term perspective. However, the sector may
require several quarters to recover, and the recovery would be headed by such
reliable companies as SAP with a low risk profile.
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