Software company Salesforce, Inc. (CRM - Get Rating) registered solid top-line year-over-year growth in its latest reported quarter. Moreover, the company recently signed an agreement with insurtech leader, Zywave.

The partnership aims to merge insurance agency sales and client service for efficient, strategic workflows enhanced by data and content to deliver a hassle-free client experience.

Amy Weaver, CRM’s President and CFO said, “In this time of economic uncertainty, we remain committed to profitable growth and consistent operating margin expansion.”

However, the company’s bottom line declined year-over-year in its 2022 third quarter. Also, CRM laid off a section of its employees in November, citing demand deterioration.

CRM has lost marginally over the past month to close the last trading session at $160.25. It has lost 36.9% year-to-date and 43.8% over the past year.

Here is what could shape CRM’s performance in the near term:

Mixed Financials

CRM’s total revenues came in at $7.84 billion for the third quarter that ended October 31, 2022, up 14.2% year-over-year. Its gross profit came in at $5.75 billion, up 14.5% year-over-year. However, its net income came in at $210 million, down 55.1% year-over-year, while its EPS came in at $0.21, down 55.3% year-over-year.

Mixed EPS Estimates

For the quarter ended October 2022, CRM’s EPS is expected to decline 4.7% year-over-year to $1.21 and marginally year-over-year to $4.73 in 2023.

On the other hand, its EPS is expected to increase 59.5% year-over-year to $1.34 for the quarter ending January 2023 and 18.6% year-over-year to $5.61 in 2024.

Poor Profitability

CRM’s trailing-12-month EBITDA margin of 8.41% is 29% lower than the industry average of 11.84%, and its trailing-12-month net income margin of 1.83% is 41.9% lower than the industry average of 3.15%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 0.93%, 0.11%, and 0.57%, compared with the industry averages of 4.75%, 3.24%, and 1.52%, respectively.

POWR Ratings Reflect Uncertain Prospects

CRM has an overall rating of C, equating to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has a C grade for Growth, consistent with the mixed financials in the latest reported quarter. It has a C grade for Stability, in sync with its beta of 1.12.

In the 139-stock Software – Application industry, CRM is ranked #38. The industry is rated F.

Click here for the additional POWR Ratings for CRM (Value, Momentum, Sentiment, Quality).

View all the top stocks in the Software – Application industry here.

Bottom Line

CRM surpassed consensus estimates in its latest quarter. It beat revenue estimates marginally and EPS estimates by 14.5%. However, the stock has lost 40.8% since hitting its 52-week high of $270.57 on December 10, 2021. Moreover, given its poor profitability, investors could wait for a better entry point into the stock.

How Does Salesforce, Inc. (CRM) Stack up Against Its Peers?

While CRM has an overall POWR Rating of C, one might consider looking at its industry peers, Commvault Systems, Inc. (CVLT - Get Rating), IBEX Limited (IBEX - Get Rating), and eGain Corporation (EGAN - Get Rating), which have an overall A (Strong Buy) rating.

CRM shares were trading at $145.20 per share on Thursday afternoon, down $15.05 (-9.39%). Year-to-date, CRM has declined -42.86%, versus a -13.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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