When many retail investors think of tech, they often think of retail-facing companies: Apple (AAPL), Google (GOOG), and Microsoft (MSFT) are top of mind. But behind these companies are a vast marketplace of b2b services, technology infrastructures, component manufacturers, and security protocols that can be big movers as the b2b marketplace changes.
Some of these companies are quite large, established, and important. SAP (SAP), is one of those established and large b2b tech companies. As one of the largest and most important enterprise software companies in the world, SAP announced better-than-expected results for both the top line and bottom line, causing pre-opening gains and a 5% price increase at open.
While the stock slid in mid-day trading as a mix of profit-taking and macro concerns bogged the market down, the surprise announcement of 12% revenue increase from software services, and 9% overall revenue increases, indicates that the company’s growth rate isn’t fully mature, and there is fundamentally-driven upside in the company despite competition.
Before the bell, SAP’s P/E ratio was 21.73; even with the rise, the company’s P/E ratio has remained pretty much below 22 for most of Monday’s trading, indicating that further upside might be on the way.
What about the competition? Cisco (CSCO), Oracle (ORCL), and IBM (IBM) remain roughly flat. Smaller firms like Juniper Networks (JNPR) and Palo Alto networks (PANW) remain roughly flat, but Check Point Software (CHKP) is up over 4% on good news of its own.
CHKP reported a penny EPS beat and nearly $1m more revenue than expected with slightly raised guidance, the firm provided some real relief to investors worried that competing startups and newer firms (FTNT, FEYE, PANW) are stealing the company’s lunch. FEYE is down on the news, but FTNT is up in sympathy.
How can an investor respond? All too often, retail investors make the mistake of trying to catch the momentum after the fact; while this will catch some pennies here and there, it’s an unsustainable investment practice based more on luck than on market savvy.
A better, and more profitable, way to think about the market is to follow the money. How big is the addressable market, and how much has been reported so far? Who’s going to get the rest, and why? How much is dedicated to different parts of the business: infrastructure, security, networking solutions, consulting, components, and so on? Who does what, how well do they do it, and how are market trends changing?
These are very good questions for any investor in the tech world to find answers for. While no two investors will come up with exactly the same answer, some investors will get closer to the facts than others–and those that do stand to make a lot of money.