Salesforce, Inc (CRM) is benefiting from increased corporate spending on digital transformation initiatives. In this piece, let’s discuss the stock’s potential that still makes it a solid buy.
Investors are showing strong interest in emerging technologies such as artificial intelligence, machine learning, and blockchain, which have the potential to revolutionize multiple industries. This has led to significant investment in these areas from both private and public sources.
The global business software and services market is expected to expand at a CAGR of 11.9% from 2023 to 2030.
CRM has gained 35.7% over the past three months to close the last trading session at $182.89. Moreover, it has gained 7.6% over the past month. Wall Street analysts expect the stock to hit $223.26 in the near term, indicating a potential upside of 22.1%.
CRM recently introduced “Einstein GPT,” the world’s first generative AI CRM technology that uses a range of AI models and real-time data to deliver AI-created content across various customer interactions at scale. The solution also integrates with OpenAI’s ChatGPT technology.
CRM also plans to integrate Einstein GPT with its Slack instant messaging program. This move is part of the company’s broader push into AI technology.
Moreover, CRM’S venture capital division is introducing its biggest fund to date, worth $250 million, which will be invested in startups specializing in generative artificial intelligence. The company has previously invested in companies like Zoom, Snowflake Inc. (SNOW), and DocuSign Inc. (DOCU).
In addition, CRM’s fourth-quarter earnings exceeded expectations. Also, its full-year revenue was $31.40 billion, representing an 18% year-over-year increase, or 22% in constant currency, making it one of the strongest performers for a software company of its size.
Marc Benioff, Chair and CEO of Salesforce. “We closed FY23 with operating cash flow reaching $7.1 billion, up 19% year-over-year, the highest cash flow in our company’s history, and one of the highest cash flows of any enterprise software company our size.”
Further, CRM’s revenue is projected to be $8.16-$8.18 billion for the first quarter and $34.5-$34.7 billion for the current fiscal year. The company also expects non-GAAP earnings per share to be $1.60-$1.61 for the first quarter and $7.12-$7.14 for the full year.
Here is what could shape CRM’s performance in the near term:
Solid Top-Line Growth
During the fiscal fourth quarter that ended January 31, 2023, CRM’s total revenues grew 14.4% year-over-year to $8.38 billion. Its subscription and support revenues rose 14% year-over-year to $7.79 billion. Its non-GAAP income from operations rose 123.3% from the year-ago value to $2.45 billion.
Also, the company’s non-GAAP net income and non-GAAP EPS stood at $1.66 billion and $1.68, up 96.4% and 100% from the prior year’s quarter, respectively.
Favorable Analyst Expectations
CRM’s revenue and EPS for the fiscal first quarter ending April 2023 are expected to increase 10.2% and 64.5% year-over-year to $8.17 billion and $1.61, respectively.
Analysts expect CRM’s revenue for the fiscal year 2024 to rise 10.4% year-over-year to $34.62 billion. Its EPS is expected to grow 36.2% year-over-year to $7.14 in the current year. The company also surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is remarkable.
CRM’s trailing-12-month gross profit margin of 73.34% is 50% higher than the industry average of 48.89%, while its trailing-12-month levered FCF margin of 32.60% is 384.1% higher than the industry average of 6.73%.
The stock’s 2.55% trailing-12-month CAPEX/Sales is 5.8% higher than the 2.41% industry average. Its 17.34% trailing-12-month EBITDA margin is 54.6% higher than the industry average of 11.22%.
POWR Ratings Reflect Promising Outlook
CRM has an overall rating of B, which equates to a Buy 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 an A grade for Growth, consistent with its steady growth in the last reported quarter. It also has an A for Sentiment, in sync with optimistic analyst expectations.
Moreover, its high profit margins justify the stock’s B grade for Quality.
Within the 134-stock Software – Application industry, CRM is ranked #19.
Click here to access the additional POWR Ratings for CRM (Value, Momentum, and Stability).
The stock is currently trading above its 50-day and 200-day moving averages of $162.71 and $161.07, indicating an uptrend.
CRM’s strong performance in the last quarter was a result of the company’s unwavering attention to executing its strategies proactively. This success has positioned it for a significant transformation in the upcoming fiscal year 2024.
Moreover, the company is riding the wave of the AI boom and is focused on increasing investment. With the software industry showing strong growth prospects, I think CRM might be an excellent stock to buy in 2023.
How Does Salesforce, Inc. (CRM) Stack up Against Its Peers?
While CRM has an overall POWR Rating of B, one might consider looking at its industry peers, eGain Corporation (EGAN), Commvault Systems, Inc. (CVLT), and Progress Software Corporation (PRGS), which have an overall A (Strong Buy) rating.
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CRM shares were unchanged in premarket trading Wednesday. Year-to-date, CRM has gained 37.94%, versus a 2.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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