Shares of German application software provider SAP SE (SAP, Financial) fell 2.84% on Friday. The Walldorf-based technology giant announced strong fiscal fourth-quarter and full-year 2020 earnings before the market opened.
SAP's stock is now down more than 6% over the last three trading sessions. This decline follows a sharp spike of nearly 8% achieved in the previous two weeks. The company has lost more than 25% in market value since hitting a new historical high of $169 at the start of September.
Highlights from recent quarterly results
SAP posted a non-IFRS earnings per share decline of 1.47% to 1.69 euros ($2.01). This was still better than the consensus estimate of $1.97. Revenue for the period declined marginally by 0.29% year over year to 7.54 billion euros ($8.99 billion). This was slightly lower than the consensus top-line estimate of $9.01 billion.
SAP's full-year non-IFRS revenue fell by 1% to 27.34 billion euros, down from 27.63 billion euros reported a year ago. Adjusted earnings per share came in at 5.41 euros, up 6% from 5.11 euros reported in 2019.
The company's shares of predictable revenue edged higher by five percentage points to 72%. This category includes revenue from cloud and software, which came in at 23.23 billion euros, up 1%.
The company sees continuous top-line growth in its cloud business with more businesses expected to shift to cloud software and services in 2021. SAP expects a gradual improvement in demand markets during the second half of 2021 as Covid vaccine rollouts continue.
SAP has provided cloud and software segment revenue guidance of 23.3 billion euros to 23.8 billion euros for fiscal 2021.
Valuation
From a valuation perspective, shares of SAP are trading at a trailing price-earnings ratio of about 25.49. This is relatively higher than the Peter Lynch value of 15. However, when we factor in expected earnings growth for the next 12 months, the company's forward price-earnings ratio of about 21.52 suggests the bottom line could improve in the foreseeable future.
Compared to close peers, SAP looks relatively cheap. Luxembourg-based Globant SA (GLOB, Financial) trades at a forward price-earnings ratio of 64.80 while Belgium's Materialise NV (MTLS, Financial) is valued at an equivalent of 1,166.90.
In summary, shares of SAP appear to be slightly overvalued based on the Peter Lynch earnings line. However, when we compare it to close peers, it looks relatively cheaper. The company is also trading several levels below its current 52-week high of $169. There is much room to run in 2021.
Disclosure: No positions in the stocks mentioned.
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