Salesforce (CRM) is one of the biggest players in the Software as a Service (SAAS) industry with a valuation of over $241 billion.
The company has grown its business organically and through some high-profile acquisitions. It spent $27.7 billion buying Slack in 2021, $15.7 billion buying Tableau, and $6.5 billion acquiring MuleSoft.Â
The other top buyouts were companies like ExactTarget, Demandware, Quip, and ClickSoftware.Â
These acquisitions have helped Salesforce to diversify its business. In addition to offering customer relations software, the company is in corporate communications through slack, data visualization through Tableau, and e-commerce software provider through its Demandware solution.
Salesforce’s revenue figures have done well after rising from over $17 billion in 2019 to over $34 billion in 2023. However, its stock remains about 21% below its highest point this year as concerns about its growth continue.
Salesforce stock was trading at $248 on Wednesday while its HypeIndex metric rose to 105%.
Positive hype
Salesforce is a top software company that is widely used by thousands of companies globally. Over the years, it has grown its market share across multiple areas like sales, customer relations, cloud computing, and even artificial intelligence. For example, it has been recognized as a leader in the Magic Quadrant for salesforce automation.
Salesforce is a high-margin business with low churn. Its gross profit margin stands at 76.35% while its net income margin was 15%. It has room to grow its margins once it completes integrating its recent acquisitions.Â
The company’s hype has also increased after the stock dropped following last week’s earnings. Its second-quarter revenue rose by 8% YoY in the second quarter to $9.33 billion, beating analysts' estimates. Its operating margin rose to 19.1%.
Salesforce expects that its third-quarter revenue will be $9.3 billion while its full-year revenue guidance will be between $37.7 billion and $38 billion.Â
The company hopes to become a major player in the artificial intelligence industry, thanks to its Agentforce AI solution. This is important because many parts of its offerings can be automated. For example, companies can use autonomous agents to respond to queries and push marketing solutions.
Salesforce has moved from its growth phase and is now focusing on profits and returning cash to shareholders. It returned $4.3 billion to investors in the last quarter.
Most Wall Street analysts have a bullish rating on the stock. 41 of the 45 of those tracking the company have a buy rating. The average stock target is $306, higher than the current $248.
Most analysts believe that Salesforce stock is cheap as the management continues cutting costs. Last year, it announced layoffs of over 8,000 workers.Â
Negative hype
Salesforce growth rate is slower than other SaaS companies. Microsoft’s revenue grew by 15.2% in the second quarter while Adobe grew by 11%. Servicenow grew by 22% while companies like Autodesk and Workday had faster growth.
Salesforce has been criticized for focusing on growth through acquisitions. For example, some analysts believe that it overpaid for its Slack acquisition. This week, it acquired Tenyx, a company that offers voice AI solutions.
Technically, the stock has formed a bearish flag chart pattern, meaning that it may make a bearish breakout in the near term.
Summary on Salesforce stock
Salesforce is a top blue-chip software company that has a leading market share in key industries. It has little churn since it would be expensive and time-consuming for a company to replace its solutions.
However, Salesforce is no longer a fast-growing company, meaning that it should be valued as a value stock. In this regard, the company has a forward P/E ratio of 25, slightly higher than the industry median of 23 and the S&P 500 metric of 20.
While the stock has formed a bearish flag pattern, it has also formed a cup and handle (C&H), a popular sign of a bullish continuation. This means that the stock may bounce back when the current volatility fades.
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