Here’s why the Sage Group share price surged to a record high

Sage Group (LON: SGE) share price bounced back after the company published strong financial results as its business continued booming. The stock jumped to a record high of 1,056p on Wednesday, higher than last month’s low of 945p. 

Sage Group is doing well

Sage Group, an accounting company that focuses on small and medium businesses, is doing well. In a statement, the company said that its annual recurring revenue (ARR) rose by 11% in FY23 to £2.18 billion. Its total revenue jumped by 10% to £2.18 billion while its operating profit soared by 18% to £456 million.

As a result, the company increased its annual dividend by 5% to 19.3p and started a share buyback worth £350 million. Share repurchases help to boost shareholder returns by reducing the number of outstanding shares, which boosts the earnings per share. 

Sage Group also expects that its next financial year will do well, with operating margins expected to trend upwards.

The company’s results were a bright shining light compared to other European fintech companies. CAB Payments and Worldline stocks crashed by more than 30% after they published weak financial results. 

Sage Group has been very resilient as more SMB companies continue to digitise their operations amid the ongoing macroeconomic uncertainty. Most importantly, Sage sees low churn because it provides services that are essential to most companies. Its key solutions are in the accounting, payroll, and human resources.

Sage is also diversified geographically. While it is a British economy, it makes most of its money in the US and Canada. 29% of its revenue comes from the UK, Ireland, Africa and APAC while 27% comes from the rest of Africa.

The key challenge for Sage Group is that it is a bit overvalued. It has a total market cap of £10 billion and a profit after tax of £211 million. This means that it has a PE multiple of almost 50, which is huge.

Sage Group share price forecast

Sage chart by TradingView

In my last article, I explained why Sage share price would bounce back, citing the bullish flag pattern that was forming. This view was correct as the stock continued surging. It has now moved above the year-to-date high of 1,055p. 

Also, the Sage Group stock price has risen above the 50-day and 100-day Exponential Moving Averages (EMA). The Relative Strength Index (RSI) has moved above the overbought level of 70. Therefore, the outlook is bullish, with the next point to watch being at 1,080p.