Analysis of SAP 2014

Company: SAP

Business: A German software and software related services company. They are currently offering five lines of products: Business Application, Database & Technology, Analytics, Cloud and finally Mobile. By reading their own explanations for what their products could do I must say that the language was non descriptive and weak. Happily they do business to business sales.

Active: Customers in 188 countries and employees in 130 of those. They have 3.8 customers per employee.

P/E: 21.0

Here you can find the previous analysis of SAP.

The P/E of SAP is too high for me with 21.0 even though it has decreased from the last analysis due to increased earnings and decreased share price. The P/B is also too high with 4.3 and all in all we receive a no go from Graham. The earnings to sales is excellent with 20% and the ROE is also excellent with 20.7%. The book to debt ratio is also great with 1.5. In the last six years they have had a yearly growth rate of 6.4% which is excellent and this gives us a motivated P/E of 19 to 21 which means that today SAP is fairly valued by the market. They spend a lot of money on R&D since it represents almost 70% of their earnings which I find slightly too high but I guess that comes from what they consider to be R&D and I suspect that they account for customized solutions to customers as being development which to me is part of their everyday business model. They pay a tiny dividend of 1.85 which represents 37% of their earnings which means they can at least keep it up.

Conclusion: Graham says no to SAP and I am a little bit more open. It is a strong company with strong products that companies demand. The P/E is according to their growth. The P/B is too high, the growth and ROE is excellent  and the dividend is low. Still... I find it too expensive today and would love to see it decrease slightly more before deciding to step into it as shareholder. Who knows maybe next year we will be luckier and the market will like SAP even less.

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