SAP SE's (ETR:SAP) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.
How Do You Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for SAP is:
16% = €6.6b ÷ €41b (Based on the trailing twelve months to June 2025).
The 'return' is the income the business earned over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.16 in profit.
Check out our latest analysis for SAP
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don't share these attributes.
SAP's Earnings Growth And 16% ROE
To begin with, SAP seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 16%. For this reason, SAP's five year net income decline of 7.6% raises the question as to why the decent ROE didn't translate into growth. So, there might be some other aspects that could explain this. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
However, when we compared SAP's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 8.7% in the same period. This is quite worrisome.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about SAP's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is SAP Efficiently Re-investing Its Profits?
SAP's declining earnings is not surprising given how the company is spending most of its profits in paying dividends, judging by its three-year median payout ratio of 71% (or a retention ratio of 29%). With only very little left to reinvest into the business, growth in earnings is far from likely.
Additionally, SAP has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 38% over the next three years. However, the company's ROE is not expected to change by much despite the lower expected payout ratio.
Summary
In total, it does look like SAP has some positive aspects to its business. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE. Bear in mind, the company reinvests a small portion of its profits, which means that investors aren't reaping the benefits of the high rate of return. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
USA Today
a few seconds ago
- USA Today
Trump's BLS commissioner pick suggests suspending monthly jobs reports
WASHINGTON ― President Donald Trump's nominee to be the new U.S. commissioner of Labor Statistics recently suggested the agency stop issuing monthly jobs reports until the methodology used to compute the figures is changed. E.J. Antoni, a Heritage Foundation economist who Trump tapped on Aug. 11 to replace the Bureau of Labor Statistics commissioner he fired, proposed the idea during an Aug. 4 interview to Fox News Digital. He questioned the agency's methodology and economic assumptions because of recent jobs revisions, calling it a "serious problem that needs to be fixed immediately." "Until it is corrected, the BLS should suspend issuing the monthly job reports but keep publishing the more accurate, though less timely, quarterly data," Antoni said. "Major decision-makers from Wall Street to DC rely on these numbers, and a lack of confidence in the data has far-reaching consequences." More: Trump names conservative economist E.J. Antoni to lead Bureau of Labor Statistics If confirmed by the Senate, Antoni would replace Erika McEntarfer, an appointment of former President Joe Biden who Trump fired on Aug. 1. Trump accused McEntarfer without evidence of manipulating data for "political purposes" after the Bureau of Labor Statistics reported the U.S. added a disappointing 73,000 jobs in July. Trump also complained about revisions that reduced job gains in May and June by about 258,000 and portrayed a much weaker labor market than Trump has touted. More: Why jobs revisions that led Trump to fire statistics head were so huge White House press secretary Karoline Leavitt downplayed Antoni's recent remarks, saying he only "floated the idea of possibly" suspending the months jobs reports. She said it is "the plan and the hope" for the BLS to continue releasing monthly jobs reports. "We need to look at the means and the methods, and how the United States is acquiring this very important data, and all of that is going to be done," Leavitt said during an Aug. 12 briefing with reporters. "And the goal, of course, is to provide honest and good data for the American people." The Aug. 1 revisions for May and June marked the largest two-month revision ever outside of recessions, according to an anlaysis from Goldman Sachs. Each month, the BLS provides an initial reading of job gains for the previous month and revises figures from the prior two months twice based on follow-up surveys. To come up with its monthly job growth estimates, the agency surveys 631,000 job sites operated by 121,000 businesses and government agencies across the country. The bureau revises the data twice because many employers don't respond to the first survey or because officials modify the factors it uses to seasonally adjust the figures. Most economic forecasters say this year's large revisions have cleared up a disparity between surprisingly resilient job gains and other economic indicators, such as gross domestic product, that have been feeble this year. Contributing: Paul Davidson of USA TODAY Reach Joey Garrison on X @joeygarrison.
The Hill
a few seconds ago
- The Hill
S&P hits record high as stocks rise on inflation data
The S&P 500 index rose to a record high Tuesday as July inflation data raised Wall Street's hopes for rate cuts. The S&P 500 closed 1.1 percent higher, rising more than 70 points to close at a record high of 6,445.8. The Dow Jones Industrial Average and Nasdaq composite also rallied 1.1 percent and 1.4 percent, respectively. Stocks rallied after the Bureau of Labor Statistics released new consumer price index (CPI) data showing inflation plateauing, largely in line with the projections of economists. Prices rose roughly 2.7 percent on the year and 0.2 percent in June, according to the report, as falling gasoline prices wiped out increases in prices for airline tickets, used cars, medical care and other services. The combination of plateauing inflation and meager job growth should give the Federal Reserve ample room to cut interest rates at its next policy meeting in September. Stocks tend to rally as rate cuts become more likely, since lower borrowing costs can help fuel investment and reduce borrowing costs for businesses. While the headline inflation numbers may be encouraging for rate cuts, several economists warned Tuesday that tariff-driven price increases may just be taking hold, especially with much of Trump's tariff agenda imposed after the period covered in the inflation report. 'Goods inflation heat is concentrated in tariff-affected products like household furnishings, apparel and new/used vehicles,' warned Callie Cox, chief market strategist at Ritholtz Wealth Management, in a Tuesday analysis. 'This shift in inflation prospects could be especially treacherous for investors, who are convinced we're getting a rate cut in September after a gross July jobs report.'
New York Times
2 minutes ago
- New York Times
The U.S. May Be Coming Around to Balcony Solar
Across Germany, more than a million people had installed solar panels on their balconies as of last month. But those are just the officially registered systems. The actual figures could be three times as high, according to government estimates. Though each installation is small, the aggregate electricity generated from these plug-in solar panels is helping Germany reach its renewable energy targets. Is the U.S. next? It's complicated. Plug-in solar, also known as balcony solar, refers to small-scale solar systems that can be installed without an electrician or without permission from a local utility. It is certainly closer to taking off in the U.S. than it was six months ago. The technology's backers hope more hurdles will be cleared before the year is out. This is happening largely thanks to a small-but-committed assortment of policymakers and solar power supporters who are working to make it more accessible. There are two main barriers. First, there are local utility rules, many of which limit what residents can install without permission. And some would-be customers are waiting for the release of a key safety standard from an independent testing company. Victoria Augustine, an environmental activist and resident of Queens, in New York City, was one of the first buyers of a Flex 200 plug-in panel system released earlier this summer by Bright Saver, a nonprofit group based in California that promotes balcony solar. On Aug. 1, she zip-tied the panel onto a wrought iron fence on her porch. She plugged it into an outlet, making sure it wasn't sharing the circuit with any other appliances. The whole process took less than an hour, including a trip to the hardware store for extra zip ties. There was no visit from an electrician or approvals from her local utility. A Bright Saver employee helped her set up a phone app on to track the system's output. And that was it: The panels were generating electricity, albeit just a little. When the sun is shining, the 200-watt system will be able to offset roughly enough electricity to power a small appliance. The Flex 200 could save Augustine an estimated $37 to $50 per year in electricity costs. Bright Saver, a nonprofit group, began selling the Flex 200 for $399 this summer, and the first run of a few dozen systems sold out within a week, said Cora Stryker, its co-founder. The Flex 200 maxes out at about a quarter of the electricity that balcony systems in Germany can produce. That's by design: The founders wanted to release a product that could be used anywhere in the United States without needing permission from the authorities. Bright Saver's product is not designed to send electricity back to the grid, and it is not large enough to trigger local utility rules, said Kevin Chou, the group's executive director. 'I think that what we're trying to do is demonstrate the demand,' said Stryker, who added that the organization was working with state lawmakers to allow more powerful plug-in solar systems. 'Hopefully, a year or two from now, we won't be talking about these 200-watt systems,' she said. Utah legislators eliminated one of their state's biggest hurdles for plug-in solar this year when they passed a law exempting certain home solar systems from requirements that they enter into interconnection agreements with local utilities to send small amounts of electricity back to the grid. Some larger plug-in systems are already being sold in the state. EcoFlow, which has a presence in Germany, has begun selling its STREAM systems to Utah residents. Including panels, they retail for about $2,000. The company declined to share specific sales figures, but Ryan Oliver, its spokesman, said interest has been 'high' since state lawmakers passed the bill. 'We saw that as an invite to bring our product to the Utah market, and we're hoping to see some of these same kinds of moves in other states,' Oliver said. But Raymond Ward, the Republican state legislator who introduced the plug-in solar bill, still hasn't added panels to his own home. That's because his own bill says plug-in systems must be certified by a nationally-recognized safety testing agency. Right now, Ward says, companies selling panels are operating in 'a little bit of a gray area.' The 'gray area' Ward referenced has to do with a safety standard from the independent testing company Underwriters Laboratories. 'UL certification' appears on household items like hair dryers, lightbulbs and refrigerators. Underwriters Laboratories has not issued a specific safety standard for plug-in solar systems. Individual solar components like inverters are already certified under an existing standard. Some safety advocates argue that a whole-product standard, not just one that applies to its components, is necessary before plug-in solar systems hit the market. Representative Ward said he thought people outside of Utah might start buying and installing plug-in solar systems once the UL standard was published, regardless of state regulations. 'That's just a guess, but that's what happened in Europe,' he said. He said he wanted to give his wife a plug-in system for Christmas, and that he hoped the products would be out of the gray area by then. Conservation Trump cracks down on bird deaths, but only from wind turbines Bald eagles must be protected to the fullest extent of the law from dangerous wind turbines, President Trump's interior secretary declared this week. But four months ago, President Trump called for gutting the very law that applies, the Bald and Golden Eagle Protection Act, calling it a burden on oil and gas producers. Trump administration officials insisted there was no conflict between the two positions and said the president was consistently enforcing laws for all forms of energy development. Conservationists said the Trump administration's embrace of America's iconic bird was just a pretext for attacking the wind industry, which the president has publicly seethed about ever since he lost a legal battle to stop a wind farm from being built in view of one of his Scottish golf courses. — Lisa Friedman Read more. Climate policy A tug of war over air-conditioning in France The culture wars have come for air-conditioning, at least in France. In July, as a heat wave broiled much of Europe, feelings about air-conditioning suddenly became a political litmus test. Marine Le Pen, the far-right leader in France, declared that she would deploy a 'major air-conditioning equipment plan' around the country if her nationalist party eventually came to power. Marine Tondelier, the head of France's Green party, scoffed at Le Pen's idea and, instead, suggested solutions to warming temperatures that included 'greening' cities and making buildings more energy efficient. In France, only an estimated 20 to 25 percent of households are equipped with air-conditioning, according to the country's Agency for Ecological Transition. — Aurelien Breeden and Josh Holder Read more. Reuters investigated the airline industry's claims about the nascent sustainable aviation fuel projects it has announced in recent years. 'While airlines have announced 165 SAF projects over the past 12 years,' they report, 'only 36 have materialized.' Higher temperatures have caused tropical bird populations to decline by up to 38 percent since the 1950s, according to a study highlighted by Carbon Brief. In 2020, California passed a law mandating that homeowners in some wildfire-prone areas take extra precautions to protect their homes. But Bloomberg reports that the rules still have not been enacted. Thanks for being a subscriber. Read past editions of the newsletter here. If you're enjoying what you're reading, please consider recommending it to others. They can sign up here. Browse all of our subscriber-only newsletters here. And follow The New York Times on Instagram, Threads, Facebook and TikTok at @nytimes. Reach us at climateforward@ We read every message, and reply to many!
