Key Takeaways

• SAP’s share price up almost 40% over one year 
• SAP has overtaken Novo Nordisk as Europe’s largest company  
• SAP’s transition to the cloud has driven high returns  
• SAP is trading below its fair value estimate 

German software giant, SAP, has become the largest stock in Europe, overtaking Ozempic producer Novo Nordisk.

Both AI and cloud revenue have increased, helping to boost valuations.

Just last month Rob Hales, senior equity analyst at Morningstar, raised SAP’s moat to wide from narrow, the fair value estimate for the stock to 265 euros from 150 euros, and improved the stock’s capital allocation rating from poor to standard.

Key Morningstar Metrics for SAP

• Fair Value Estimate: EUR 265.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Discount to Fair Value: 6%

Is SAP Stock a Buy, Sell or Hold?

Morningstar was previously bearish on the company over concerns about it losing customers.

But with about 80% of SAP’s legacy customers now committed to its upgraded enterprise resource planning system, those fears have now abated.

SAP’s previous management were the reason behind Morningstar’s poor capital allocation rating for the business.

But Hales backs the company’s turnaround story, as SAP is reaping the rewards of its current management’s focus on cloud product development.

So, after such a strong run, are SAP shares now a buy, sell or hold?

Actually, the company is currently undervalued according to Morningstar metrics.

Although shares are up 35% over one year, SAP is trading at 246.45 EUR below Morningstar’s fair value estimate of 265 EUR.

SAP Stock vs. Morningstar Fair Value Estimate

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.