Investing.com -- Nemetschek (ETR:NEKG) shares dropped over 4% on Thursday after J.P. Morgan analysts initiated coverage of the German software company with an "underweight" rating and a December 2026 price target of €95, down from the prior day's closing price of €99.10.
The analysts cautioned that the company's earnings growth trajectory may be overestimated, particularly given its elevated valuation. They warned investors about the potential risks to the prevailing consensus expectations.
The brokerage said that Nemetschek is navigating a revenue model transition from traditional license-based sales to subscription and SaaS, a move expected to stabilize and grow its revenue base in the mid to long term.
However, J.P. Morgan’s analysis found that much of the growth benefit from this transition has already been priced into the market's expectations, leaving limited room for positive surprises.
Specifically, the analysts forecast Nemetschek's 2025 organic growth at 13-14%, falling short of the mid-teens growth expected by the consensus.
Additionally, the report flagged challenges including decelerating subscription growth as the company laps easier comparable periods and uneven demand in key end markets such as Germany.
Nemetschek derives 21% of its revenue from Germany, where macroeconomic uncertainty and a slower transition to subscription models may dampen growth prospects.
Furthermore, the analysts pointed out potential headwinds to operating margins due to recent acquisitions and the scaling of SaaS sales, which typically carry lower gross margins compared to license sales.
J.P. Morgan also raised concerns about the company's elevated valuation, which currently trades at a forward price-to-earnings multiple of approximately 50 times, much higher than its industrial software peers.
This premium, they argue, is unsustainable given the multiple hurdles the company faces in meeting lofty consensus expectations for earnings and margin expansion.
Lastly, the analysts underscored the skewed risk-reward dynamics, stating that while Nemetschek remains a fundamentally attractive business with strong market positioning, the current valuation offers little buffer against potential missteps.