When SAP SE (XTRA:SAP) released its most recent earnings update (31 December 2019), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were SAP's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not SAP actually performed well. Below is a quick commentary on how I see SAP has performed.
Was SAP's recent earnings decline worse than the long-term trend and the industry?
SAP's trailing twelve-month earnings (from 31 December 2019) of €3.3b has declined by -18% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 3.1%, indicating the rate at which SAP is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and whether the entire industry is experiencing the hit as well.
In terms of returns from investment, SAP has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 5.6% is below the DE Software industry of 5.9%, indicating SAP's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for SAP’s debt level, has declined over the past 3 years from 15% to 14%.
What does this mean?
Though SAP's past data is helpful, it is only one aspect of my investment thesis. Generally companies that endure an extended period of diminishing earnings are going through some sort of reinvestment phase in order to keep up with the recent industry disruption and growth. I recommend you continue to research SAP to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SAP’s future growth? Take a look at our free research report of analyst consensus for SAP’s outlook.
- Financial Health: Are SAP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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