Does SAP’s Cloud Expansion Signal More Upside After Recent Share Price Dip?

Curious whether SAP is actually good value right now? You’re not alone, with investors on the hunt for clues to justify the next move on this long-standing tech giant. The stock has seen some wild swings lately, slipping 3.9% over the past week and down 9.6% year-to-date, but its three- and five-year returns still sit at an impressive 111.5% and 131.3% respectively. Much of this movement has been fueled by a flurry of headlines in the software sector, including SAP’s expansion into new cloud offerings and strategic partnerships in Europe. These developments have reignited debates about how much growth is left in the tank and whether the recent volatility signals risk or opportunity. Right now, SAP scores a 3 out of 6 on our valuation checks, showing it’s potentially undervalued in the eyes of at least some classic approaches. Let's break down these valuation methods and stick around, because we’ll wrap up with a smarter way to think about valuation that goes beyond simple numbers.

SAP delivered -1.7% returns over the last year. See how this stacks up to the rest of the Software industry.

Approach 1: SAP Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's underlying value by projecting its future free cash flows and discounting them back to today, reflecting how much those anticipated cash flows are worth right now. This method offers an in-depth look at whether the share price accurately reflects the company’s expected financial performance over the coming years.

For SAP, the reported Free Cash Flow (FCF) over the last twelve months stands at €6.44 billion. Analysts forecast steady growth, with projected FCF increasing to €11.46 billion by 2027. Looking further out, Simply Wall St extrapolates SAP’s FCF to reach roughly €17.29 billion by 2035, based on a blend of analyst forecasts and moderate growth assumptions.

Based on these cash flow projections, SAP’s estimated intrinsic value is €256.44 per share. This is 15.9% above the current market price, suggesting the stock is trading at a notable discount using this valuation approach.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests SAP is undervalued by 15.9%. Track this in your watchlist or portfolio, or discover 874 more undervalued stocks based on cash flows.SAP Discounted Cash Flow as at Nov 2025

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for SAP.

Approach 2: SAP Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like SAP because it directly relates a company’s share price to its earnings. Investors often look to the PE ratio to gauge how much they are paying for a euro of the company’s profit, making it especially relevant when those profits are reliable and growing.

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Growth prospects and perceived risk play a major role in what is considered a “normal” or “fair” PE ratio. Stronger earnings growth or lower risk typically justifies a higher multiple, while slower growth or heightened risks warrant a lower one.

SAP currently trades at a PE ratio of 35.46x. This stands above the broader software industry average of 28.81x and the peer average of 31.58x. This signals that investors may be willing to pay a premium for SAP’s earnings. However, Simply Wall St’s proprietary Fair Ratio for SAP is 39.91x, calculated to reflect factors like the company’s specific growth outlook, profitability, market cap, and risks. This goes far beyond simple industry or peer comparisons.

The advantage of the Fair Ratio is that it incorporates a fuller picture unique to SAP, including its expected earnings expansion, strong profit margins, and size, as well as sector-specific dynamics and company risks. This customized approach offers a more precise benchmark for fair value compared to a one-size-fits-all industry average.

Comparing SAP’s current PE of 35.46x to its Fair Ratio of 39.91x suggests the shares are actually trading at a discount relative to what is justified by its fundamentals.

Result: UNDERVALUEDXTRA:SAP PE Ratio as at Nov 2025

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1404 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your SAP Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story about a company, combining your perspective on its future (like expected growth, competitive advantages, or risks) with your own forecasts for things like revenue, profits, and fair value.

Rather than relying only on static numbers, a Narrative connects the dots between what you believe about SAP’s business, your financial estimates, and what you think the shares are really worth. Narratives are easy to use and available directly on the Simply Wall St Community page, where millions of investors build and share their own outlooks.

Narratives empower you to decide when to buy or sell by comparing your Fair Value to SAP’s current share price. As new information comes out, whether it is a product launch, earnings report, or breaking news, the Narrative updates automatically and helps you stay on top of what matters most.

For example, the most bullish Narrative for SAP puts fair value as high as €345, while the most bearish values it at €192, showing how different assumptions and outlooks can dramatically affect your investment decision.

Do you think there's more to the story for SAP? Head over to our Community to see what others are saying!XTRA:SAP Community Fair Values as at Nov 2025

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include SAP.DE.

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