The consumer price index increased 7.7% in October, lower than expected, raising hopes that the Fed might slow down the pace of its rate hike in the next meeting, which might bode well for the software sector. San Francisco Fed President Mary Daly said, “Stepping down is an appropriate thing to think about.” The tech-heavy NASDAQ Composite has gained 6.1% over the past week.
Moreover, according to Gartner, enterprise software spending is projected to grow 8.6% in 2023. In addition, rapid digital transformation worldwide is boosting the application development software market growth. The market for application development software is anticipated to grow at a CAGR of 27.4%.
Given the backdrop, it could be wise to scoop up shares of fundamentally sound stock Salesforce, Inc. (CRM). However, Bill.com Holdings, Inc. (BILL) could be best avoided now, given its weak growth prospects.
Stock to Buy:
Salesforce, Inc. (CRM)
CRM is a customer relationship management technology provider. The company’s Customer 360 platform enables its customers to work together to deliver connected experiences.
On September 21, 2022, CRM partnered with Zywave at InsureTech Connect Vegas 2022. This collaboration aims to integrate the domains of insurance agency sales and client service, leading to more efficient, strategic workflows.
In terms of forward Price/Book, CRM is currently trading at 2.56x, 35.8% lower than the industry average of 3.99x.
CRM’s gross profit margin of 72.61% is 44.54% higher than the 50.24% industry average.
CRM’s total revenues came in at $7.72 billion for the second quarter that ended July 31, 2022, up 21.8% year-over-year. Moreover, its gross profit came in at $5.59 billion, up 18.3% year-over-year. Also, its income from operations came in at $5.4 billion, up 22.9% year-over-year.
Analysts expect CRM’s revenue to increase 17% year-over-year to $30.99 billion in 2023. Its EPS is expected to increase by 15.3% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained 7.3% to close the last trading session at $156.30.
CRM’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRM has a B grade for Sentiment. In the Software – Application industry, it is ranked #31 out of 143 stocks. Click here for the additional POWR Ratings for Value, Stability, Momentum, Growth, and Quality for CRM.
Stock to Avoid:
Bill.com Holdings, Inc. (BILL)
BILL provides cloud-based software that simplifies, digitizes, and automates back-office financial operations for small and midsize businesses worldwide.
In terms of forward Price/Sales, BILL is currently trading at 12.63x, 400.7% higher than the industry average of 2.52x. The stock’s forward Price/Cash Flow multiple of 247.21 is 1340.8% higher than the industry average of 17.16.
BILL’s negative EBIT margin of 40.8% is lower than the 6.99% industry average. Its negative EBITDA margin of 29.1% is lower than the 12.18% industry average.
BILL’s loss from operations came in at $87.69 million for the first quarter that ended September 30, 2022, up 18.2% year-over-year. Moreover, its net loss came in at $81.64 million, up 9.9% year-over-year.
BILL’s EPS is expected to decrease by 28.7% per annum for the next five years. Over the past year, the stock has lost 63.3% to close the last trading session at $120.14.
BILL’s overall D rating equates to a Sell in our POWR Ratings system.
It has an F grade for Stability and a D for Value, Momentum, and Quality. It is ranked #121 in the same industry. Beyond what is stated above, we’ve also rated BILL for Growth and Sentiment. Get all BILL’s ratings here.
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CRM shares were trading at $159.33 per share on Friday afternoon, up $3.03 (+1.94%). Year-to-date, CRM has declined -37.30%, versus a -15.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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