Is Sopra Steria Group (ENXTPA:SOP) Now a Convincing Buy After Recent Price Volatility and Leadership Change?

The recent leadership transition at Sopra Steria Group (ENXTPA:SOP) has sparked renewed debate among investors about the company's valuation potential and operational risks. With the stock trading near €151.90-well below its estimated fair value of €197.60-analysts are weighing whether the current discount justifies a long-term investment thesis. However, the appointment of Rajesh Krishnamurthy as CEO, effective February 2, 2026, introduces both strategic optimism and lingering execution risks that demand careful scrutiny.

Valuation Dislocation: A Compelling Case for Undervaluation

Sopra Steria's shares have shown resilience in early 2026, rising 10% over the past month and 11% in the past three months, despite a flat year-to-date return. This divergence from broader market trends suggests a potential valuation dislocation. Analysts have adjusted their price target to €209 from €214, reflecting minor tweaks to discount rates and valuation multiples, though the modeled fair value remains unchanged at €197.60. This implies the stock could still offer a 30% upside from current levels, assuming the company meets its long-term financial targets.

The market's cautious optimism is partly driven by the leadership change. Krishnamurthy, a French national of Indian origin, brings three decades of experience in technology and consulting, including transformative roles at Infosys and Expleo. His appointment has already triggered a 7.5% share price surge, signaling investor confidence in his ability to stabilize operations and unlock value.

Operational Execution Risks: Credit Deterioration and Integration Challenges

Despite the valuation appeal, Sopra Steria faces significant operational headwinds. The company's credit risk profile has deteriorated, with a credit rating downgrade from B3 to B4 and an increased probability of default-from 0.241 in August 2021 to 0.508 in April 2025. This trend is linked to challenges in its Infrastructure & Security Services division, where large-scale contracts and acquisition integrations have introduced earnings volatility. For instance, the proposed acquisitions of CS Group and Tobania added short-term financial strain, exacerbating concerns about liquidity and profitability.

Moreover, the company's 2025 guidance-projecting organic revenue growth between -2.5% and +0.5%-highlights a difficult operating environment. While Q2 2025 showed improved trends compared to Q1, the first half of the year is expected to see a 5-6% revenue decline. These challenges underscore the risks of executing complex transformations, particularly during a leadership transition.

Leadership Transition: Strategic Fit and Execution Potential

Krishnamurthy's background, however, offers a counterpoint to these risks. At Expleo, he drove a 50% revenue increase and significantly improved operating margins, demonstrating his ability to scale operations and enhance profitability. His focus on digital sovereignty-a strategic priority for Sopra Steria- aligns with growing European demand for homegrown tech solutions. The Board, chaired by Pierre Pasquier, has emphasized confidence in his capacity to navigate the company through its transformation.

Nevertheless, analysts caution that the success of this transition hinges on effective management of legacy issues. The outgoing CEO, Cyril Malargé, acknowledged operational improvements in Q2 2025 but also noted the "difficult first half" of the year. A smooth handover, supported by a transition team, will be critical to maintaining momentum.

Market Expectations: Balancing Optimism and Caution

The market's mixed signals reflect this tension. While the stock's current valuation suggests undervaluation, analysts have trimmed their price targets, citing sensitivity to inputs like profit margins and discount rates. This adjustment underscores the fragility of the investment case: even modest deviations from guidance could widen the gap between intrinsic value and market price.

For investors, the key question is whether Krishnamurthy's strategic vision can mitigate these risks. His emphasis on digital transformation and operational excellence-proven in prior roles-positions Sopra Steria to capitalize on European defense, security, and space industry investments. However, the company's ability to integrate acquisitions and stabilize its credit profile will remain pivotal.

Conclusion: A Calculated Bet on Leadership and Resilience

Sopra Steria's valuation dislocation presents an attractive entry point for long-term investors willing to tolerate near-term volatility. The appointment of Krishnamurthy, with his track record of driving growth and innovation, offers a compelling narrative for unlocking value. Yet, the operational risks-particularly in contract execution and credit stability-cannot be ignored.

For the stock to justify its current discount, Krishnamurthy must deliver on his mandate to strengthen digital sovereignty and operational efficiency. If successful, Sopra Steria could emerge as a resilient player in Europe's tech landscape. But until then, the investment remains a calculated bet, balancing the promise of undervaluation against the perils of execution.