Salesforce CRM stock has lagged its industry in 2019 and is down roughly 6% over the last month as the broader markets faces a U.S.-China trade deal-based pullback. With that said, CRM stock has been strong for years and its cloud-based customer relationship management business looks poised to expand as more firms, big and small, modernize and digitize their operations.
Let’s take a look to see if investors should consider buying Salesforce stock before it reports its first-quarter fiscal 2020 financial results, which are due out after the market closes on Tuesday, June 4.
Quick Overview & Price Movement
Salesforce at its core offers its business clients a wide range of cloud-based platforms to help them run sales, marketing, e-commerce, analytics, and much more. The San Francisco-based firm’s customer relationship management offerings have become essential to many companies and would otherwise require a large amount of in-house talent, infrastructure, and maintenance.
CRM’s clients include Amazon AMZN, American Express AXP, the U.S. Department of Agriculture, and more than 150,000 other firms and agencies. Marc Benioff’s company also sells Microsoft MSFT Office-style products to help compete against the likes of Microsoft and Google GOOGL. Plus, the software-as-a-service firm has bolstered its Einstein artificial intelligence platform, with new features such as voice controls.
Salesforce stock closed regular trading hours Tuesday at $155.19 per share, down roughly 7.5% below its 52-week intraday trading high of $167.56. CRM shares are now up 23% over the past 12 months to outpace the S&P 500’s 5% climb. Jumping back further, investors will notice that shares of CRM have outpaced their peer group’s average climb over the last five years—this group includes Adobe ADBE, Oracle ORCL, and VMware VMW, Intuit INTU, Symantec Corporation SYMC, and a few others.
Moving on, Salesforce provided adjusted Q1 earnings guidance between $0.60 and $0.61 per share last quarter, with the high-side representing a roughly 17% climb from the first quarter of fiscal 2019. Meanwhile, the company expects its adjusted fiscal 2020 EPS figure to come in at the $2.74 to $2.76 range.
At the top of the income statement, our current Zacks Consensus Estimate calls for the company’s Q1 revenue to jump by 22.5% to reach $3.68 billion. Last quarter, Salesforce’s revenue popped 26%. Looking further ahead, the company’s full-year revenue is projected to climb 21.3% to reach $16.11 billion.
Investors should note that this would end Salesforce’s extended run of approximately 25% growth nearly every quarter. This, however, is what happens as companies expand. Peeking further ahead, Salesforce’s management projects its revenue will hit between $26 billion to $28 billion by fiscal 2023. This implies an annual growth rate of roughly 19% over the next four years and would see the firm double its fiscal 2019 revenue of $13.28 billion.
Salesforce is currently a Zack Rank #3 (Hold). CRM’s price/sales ratio of 8.9 comes in well above its industry’s average of 4.2, but falls in line with peers such as VMware and Intuit. On top of that, Salesforce is trading at 58X earnings at the moment, which marks a huge premium compared to its industry’s 30.5X average and most of its peers. Therefore, we can say that value investors shouldn’t really think about CRM at the moment.
Salesforce does have an impressive history of quarterly earnings beats, including a 130% average beat over the trailing four periods. But buying a stock heading into earnings is not for the faint of heart as it is never clear how Wall Street will react even to a ‘blowout’ quarter.
In the end, Salesforce is a firm that operates a steadily expanding business that has almost zero seasonality. Salesforce also looks set to play a major role in the expansion of business-related SaaS, cloud computing, AI, and might be worth considering as a longer-term tech holding.
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