Shares of enterprise software maker Salesforce, Inc. (CRM) have lost 47% in price year-to-date and 47.3% over the past year to close the last trading session at $134.75. It is trading 48.4% below its 52-week high of $261.35, which it hit on December 16, 2021.

CRM’s popular Customer 360 platform delivers a source that connects customer data across systems, applications, and devices to help companies sell, service, market, and conduct commerce from anywhere. Salesforce has been the number one CRM software provider worldwide by revenue for the last nine years.

CRM’s EPS beat analyst estimates in the last quarter by 14.5%, while its revenue was $3.41 million higher than the consensus estimate. CRM’s President and CFO, Amy Weaver, said, “We delivered another quarter of double-digit top and bottom-line growth. In this time of economic uncertainty, we remain committed to profitable growth and consistent operating margin expansion.”

For fiscal 2023, the company updated its guidance. It expects revenue to come between $30.90 billion to $31 billion, representing an increase of 17% year-over-year and 20% in constant currency. Its non-GAAP operating margin was raised from 20.4% to 20.7%. In addition, it expects non-GAAP EPS of $4.92 to $4.94, up from $4.71 to $4.73 projected earlier.

CRM expects its total addressable market size to surpass $290 billion by 2026, growing at a CAGR of 13%. It expects revenues of $50 billion for fiscal 2026 and an adjusted operating margin of 25%. Management expects the company’s international share of annual recurring revenues (ARR) to reach 37% by the end of fiscal 2023.

Wall Street analysts expect the stock to hit $197.93 in the upcoming months, indicating a potential upside of 46.9%.

Here’s what could influence CRM’s performance in the upcoming months:

Mixed Financials

CRM’s total revenues increased 14.2% year-over-year to $7.83 billion for the third quarter ended October 31, 2022. Its gross profit increased 14.5% year-over-year to $5.75 billion. In addition, its cash and cash equivalents, end of the period, increased 27.8% year-over-year to $6.08 billion.

On the other hand, the company’s net income declined 55.1% year-over-year to $210 million. In addition, its EPS came in at $0.21, representing a decline of 55.3% year-over-year.

Favorable Analyst Estimates

CRM’s EPS for fiscal 2023 and 2024 are expected to increase 2.9% and 15.3% year-over-year to $4.92 and $5.67, respectively. Its revenue for fiscal 2023 and 2024 is expected to rise 16.9% and 11.2% year-over-year to $30.97 billion and $34.43 billion, respectively.

Strong Historical Growth

CRM’s revenue has grown at a 24.1% CAGR over the past three years and a 24.9% CAGR over the past five years. Its EBITDA has grown at a 1.7% CAGR over the past three years. Its total assets and levered FCF have grown at 22.5% and 21.8% CAGRs over the same period.

Mixed Valuation

In terms of forward non-GAAP P/E, CRM’s 27.41x is 39.4% higher than the 19.66x industry average. Likewise, its 17.71x forward EV/EBITDA is 37.7% higher than the 12.86x industry average.

However, its 1.42x forward non-GAAP PEG is 9.4% lower than the 1.57x industry average. Also, its 2.24x forward P/B is 41.9% higher than the 3.85x industry average.

Mixed Profitability

In terms of the trailing-12-month EBIT margin, CRM’s 1.64% is 75.2% lower than the 6.62% industry average. Its 2.47% trailing-12-month Capex/Sales is 0.7% lower than the 2.48% industry average.

On the other hand, its 30.62% trailing-12-month levered FCF margin is 309.2% higher than the industry average of 7.48%. In addition, its 72.69% trailing-12-month gross profit margin is 46.1% higher than the industry average of 49.77% industry average.

POWR Ratings Show Promise

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

Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has a C grade for Value, in sync with its mixed valuation.

It has a C grade for Quality, consistent with its mixed profitability. Its favorable analyst estimates justify its B grade for Sentiment.

CRM is ranked #15 out of 139 stocks in the Software – Application industry. Click here to access CRM’s Growth, Momentum, and Stability ratings.

Bottom Line

The Fed’s aggressive rate hikes and news of co-CEO Bret Taylor leaving CRM to start his own company have led to a significant decline in the stock price. However, the company beat revenue and EPS estimates in the last quarter despite the challenging macroeconomic circumstances. Moreover, it reported a record operating margin. The company has also raised its guidance for fiscal 2023.

Given its solid growth prospects and favorable analyst estimates, it could be wise to buy the dip in the stock.

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

CRM has an overall POWR Rating of B, equating to a Buy rating. You might also want to consider investing in the following Software – Application stocks with an A (Strong Buy) or B (Buy) rating: Commvault Systems, Inc. (CVLT), IBEX Limited (IBEX), and Mitek Systems, Inc. (MITK).

CRM shares were trading at $132.54 per share on Thursday morning, down $2.21 (-1.64%). Year-to-date, CRM has declined -47.85%, versus a -16.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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