- In light of a +35% jump in CRM stock over the last four months, Salesforce’s long-term risk/reward has shifted drastically.
- Today, we will review Salesforce’s valuation and recent business performance.
- I am downgrading the Company from a “Buy” to a “Hold”.
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Introduction
In late November 2023, I reiterated my bullish view on Salesforce, Inc. (NYSE:CRM) at ~$220 per share ahead of its Q3 FY-2024 earnings report, citing improved business fundamentals and reasonable valuation:
As of now, Salesforce is trading slightly above our fair value estimate of $222 per share. However, CRM’s expected five-year CAGR of 17.8% handily exceeds our investment hurdle rate of 15% and long-term S&P 500 returns of ~8-10%. Therefore, Salesforce is a solid “Buy” at current levels under our valuation methodology.
Earnings tend to bring volatile price swings with Mr. Market free to react in either direction. However, given Salesforce’s attractive long-term risk/reward, I’m a buyer of CRM stock ahead of the Q3 FY2024 earnings release.
Since the publication of this report, Salesforce’s stock has rallied up by more than 35% over the last four months, handily outperforming the broader market (SPY) (QQQ). Despite an ongoing growth slowdown, Marc Benioff & Co. have transformed Salesforce’s margin profile (cash flow generation) over the last 12-18 months and instituted huge capital return programs to curtail shareholder dilution. And with the recent launch of Einstein AI Co-pilot, Salesforce is firmly staking its claim as a software leader in the era of GenAI.
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