Salesforce Inc. (NYSE: CRM)
Salesforce is the leader in customer relationship management (CRM) software, and one of the oldest companies in the industry. Headquartered in San Francisco, California, the company makes cloud-based software designed to help businesses find more prospects, close more deals, and win more customers using its proprietary services. After the major shift to doing business online, Salesforce has become a stock to watch out for with an increase in positive hype of 96% over the last day prompting investors to look into what made this stock do so well. Currently, Salesforce shares trade at $129.37.
Positive Hype
There are lots of reasons that Salesforce has generated so much positive hype recently, here are some of them.
For the third quarter of fiscal 2023, which ended on Oct. 31, the cloud-based software company's revenue rose 14% year over year (and grew 19% in constant currency terms) to $7.84 billion and surpassed analysts' estimates by $10 million.
Its adjusted earnings increased 10% to $1.40 per share and also cleared the consensus forecast by $0.18.
Salesforce's revenue and adjusted earnings per share (EPS) rose 24% and 65%, respectively, in fiscal 2021 (which ended on Jan. 31, 2021). In fiscal 2022, its revenue grew another 25%, but its adjusted EPS dipped by 3% against its bigger investment-related gains in the previous year.
Analysts expect Salesforce's revenue to rise 17% in fiscal 2023, 14% in fiscal 2024, and 16% in fiscal 2025.
Salesforce's recent acquisitions (including Tableau, Mulesoft, and Slack) have increased the overall stickiness of its cloud-based ecosystem.
Economies of scale are boosting Salesforce’s margins as it expands: Salesforce expects its adjusted operating margin to expand 200 basis points to 20.7% for the full year, and to exceed 25% by fiscal 2026.
Lastly, Salesforce's stock looks fairly cheap at 31 times next year's earnings and four times next year's sales.
Negative Hype
Despite there being an ample number of reasons that would make it a good idea to take a position in Salesforce right now, it is also important to consider the downsides of this opportunity. Here are some of them.
Investors have begun to worry again that the Federal Reserve's interest rate hikes could end up tipping the U.S. economy into a recession. This caused Salesforce to initially drop by 2.2% before regaining some of its losses.
Salesforce's stock has been reeling after the company announced last week that its co-CEO is stepping down and after Slack's CEO said yesterday that he's leaving his position. Slack was purchased by Salesforce last year.
Salesforce has struggled to increase profits and recently projected revenue growth of 8% to 10% in the current period -- which would be the slowest year-over-year increase since it went public in 2004.
Conclusion
All in all, considering its strong set of fundamentals, recent financial performance and positive growth outlook, Salesforce shares are an asset to look out for. Nonetheless, factors such as current macro headwinds and reduction in spending on SaaS as well as the economic downturn might make it a less appealing purchase. Considering once again that Salesforce is the industry leader by far, it might still be worth the shot. If you’d like to receive more trending stocks straight to your inbox, check out our premium plans. Alternatively, if you’d like to hear more about the services offered by HypeIndex, you can check out our FAQ page.
HypeIndex is an AI platform that detects Hype in stocks and cryptos before it moves the market, providing reliable early detection for profitable investment opportunities.
The algorithm for our proprietary HypeIndex score is based on sentiment analysis, data science and machine learning.