Sage Group share price analysis: overvalued ahead of earnings

Sage Group (LON: SGE) share price has crawled back in the past few weeks as investors wait for its half-year financial results. After soaring to a record high of 1,285p in March, it entered a correction, falling by 12% to 1,130p. It has now jumped by 5.20% and is trading at the psychological level of 1,200p.

Sage Group earnings preview

Sage Group, the biggest fintech company in the FTSE 100 index, has done well in the stock market. It has soared from 11.75p in 1995 to 1,200p today, boosting its market valuation to over £11.2 billion.

This growth happened as the company transformed its business from a seller of software DVDs into a Software as a Service (SaaS) juggernaut. 

It has also increased the number of services in its ecosystem. In addition to accounting, Sage provides other solutions like human resource (HR) and payroll. 

Also, it has grown internationally, becoming one of the biggest companies in its industry. While Sage is a British company, it generates most of its revenue from North America.

The last annual report revealed that its statutory revenue rose from £1.9 billion in 2022 to over £2.18 billion in 2023. Its underlying profit before tax rose from £355 million to over £424 million. 

Looking ahead, the next key catalyst for Sage’s stock will be its half-year results scheduled for Thursday this week. These results will likely confirm that the company is seeing moderate growth.

Its first quarter results revealed that its revenue rose by 10% to £573 million. North American revenue rose by 13% to £259 million while the UKIA and Europe rose by 8% and 7%, respectively.

The consensus is that its revenue rose by 9.5% in the first half to £1.1 billion while its operating profit jumped to £253 million. Operating margin is expected to come in at 21.7%.

A key concern among investors is that Sage Group is overvalued. Data by YCharts shows that the company has a PE ratio of 64, which is stretched for a company growing at about 10%.

Sage Group share price forecast

SGE chart by TradingView

Turning to the daily chart, we see that the SGE stock price has drifted upwards in the past few weeks. It has jumped from a low of 1,137p in March to a high of 1,190p. 

The stock has formed a bearish flag pattern, which is characterised by a long flag pole and a rectangle pattern. This pattern is also a close resemblance to a rising wedge. 

Sage Group is also oscillating at the 50-day Exponential Moving Average (EMA). Therefore, the outlook for the stock is mildly bearish ahead of earnings. If this happens, it will likely retest the lower side of the ascending channel at around 1,160p.

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