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Bull Of The Day: Salesforce (CRM)

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·3 min read
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Salesforce CRM is unmatched in the enterprise cloud space. This innovation-fueled business continues to grow its total addressable market (TAM) through a combination of synergy driving acquisitions and organic developments that power its unprecedented profitable growth. CRM is the type of secular growth equity that you want to hold in your portfolio as rational investment decisions begin to drive the stock market.

We are starting to see momentum come back into the cloud sector as business spending ramps up. Salesforce is positioned to ride this enterprise digitalization wave through the commencing 4th Industrial Revolution. 

Analysts are getting increasingly optimistic about the future of CRM, driving up price targets and EPS estimates alike and propelling the stock into a Zacks Rank #1 (Strong Buy).

The Business

Salesforce dominates the customer relationship management (CRM, not to be confused with its corresponding ticker) market. It offers an abundance of auxiliary enterprise cloud functionalities, from automated marketing to business analytics. The company provides the #1 CRM platform globally and is the second-largest software as a service (SaaS) cloud enterprise by market cap, closely trailing Adobe ADBE.

Salesforce has become an all-encompassing enterprise cloud powerhouse. No competitors can match the firm's broad capabilities and flexibility. Salesforce has demonstrated consistent profitable growth, with its topline surging over the past 5 years at a compounded annual growth rate (CAGR) of 26%.

Salesforce is well capitalized with $15 billion in cash & equivalents, which is more than enough to cover its next 5 years in obligations. With a debt-to-total capital ratio of less than 6%, there is zero concern about its solvency. The firm has also produced annually appreciating free-cash-flows ($5.6 billion in the past 4 quarters), giving the company an immense amount of financial flexibility for acquisitions and internal investments.

Salesforce is an acquisition machine with 66 total acquisitions made since its inception 21 years ago. It made 4 significant acquisitions in the past 1.5 years, taking advantage of the pandemic discounts, including the roughly $27.7 billion Slack acquisition that pushed the business one step closer to a complete cloud enterprise suite. Investors saw the Slack purchase as richly priced, which has weighed on CRM's valuation since last fall.  

The company has a very comprehensive set of enterprise solutions and has successfully harnessed the synergies of each acquisition. The additional innovative verticals connect every part of a business's operations with best-in-class integrated applications that make choosing Salesforce a no-brainer (not to mention very sticky customer retention).

Take Away

This enterprise is an essential part of enterprises' work-from-home initiative, and it will continue to benefit from the hybrid work environment of the new normal. Salesforce is here to stay. 19 of 24 sell-side analysts are calling this stock a strong buy today with 0 sell ratings.

The consolidation that CRM has experienced over the past 11 months has put this stock on sale. After yesterday's tech-powered sell-off, I see no reason to wait on starting a position in this revolutionary cloud suite. Watch for Salesforce's Q2 earnings report next month (8/24) for more color on the recently closed Slack deal (& its synergies) and how the company views its growth potential in the post-pandemic world.  

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