Salesforce: Is this S&P 500 Stock a Buy Right Now?
June 18 2021 - 5:58AM
Finscreener.org
One of the top performers on the S&P 500, shares of
Salesforce.com have built massive wealth for long-term investors.
CRM stock went public in 2004 and has since derived over 5,600% in
cumulative returns. Comparatively, the
S&P 500 is up 421% in this period. Salesforce stock has
returned 34.3% in the last 12-months and is up 75% in the last five
years. Comparatively, the S&P 500 has surged close to 37%
since June 2020 and returned over 60% in the last five years.
While CRM stock has consistently outperformed the broader index,
is it still a top bet for long-term investors?
Salesforce.com provides cloud-based enterprise
solutions
Salesforce.com develops enterprise-facing cloud computing
solutions with a focus on customer relationship management (NYSE:
CRM).
Its Sales Cloud stores data, monitors leads and progress, forecasts
opportunities, and provides insights through analytics while
delivering quotes, contracts, and invoices.
The company’s Service Cloud enables companies to deliver
personalized customer service and support that allows enterprises
to connect agents, dispatchers, and mobile employees through a
centralized platform. Its Marketing Cloud allows enterprises to
improve engagement, conversion, revenue, and loyalty from their
customers. Salesforce.com also provides a Customer 360 Platform
that offers tools for building, securing, and managing business
applications.
In the
first quarter of fiscal 2022, Salesforce increased revenue by
23% year over year to $5.96 billion, beating Wall Street estimates
by $70 million. Adjusted earnings per share stood at $1.21 and rose
73% year over year and were $0.33 higher than consensus
estimates.
In Q4, the company’s Sales segment grew revenue by 11% while its
Service revenue was up 20%. Comparatively, growth rates for its
Platform & Other and Marketing & Commerce businesses grew
28% and 25% respectively year over year.
What next for CRM stock?
The company’s current remaining performance obligation (CRPO)
which measures expected future revenue from current contracts in
the next year rose 23% to $17.8 billion, which shows the company
should achieve another year of robust growth. Salesforce has
forecast fiscal 2022 sales at $26 billion which would indicate a
year-over-year growth of 22%. The company remains optimistic about
generating $50 billion in annual sales by 2026.
In Q1, Salesforce reported an operating cash flow of $3.2
billion which was an increase of 76% year over year. Comparatively,
free cash flow almost doubled to $3.1 billion. The company
confirmed its cash flows experience a spike in Q1 and Q4 of each
fiscal year as it receives a majority of annual fees in these
periods.
CRM ended the quarter with cash and marketable securities of $15
billion, an increase of 53%, allowing it to fund future
acquisitions and other investments. It also expects to complete the
acquisition of Slack in the current fiscal quarter which was valued
at $27.7 billion.
Once the acquisition is complete Salesforce will benefit from an
increase in its customer base. The integration of the two platforms
will enhance Salesforce’s Customer 360 platform in terms of
digitizing user experiences.
Valuation and more
Salesforce enjoys a market-leading position in the global
customer relationship management space with a share of around 20%.
This allows the company to benefit from pricing powers as well as
economies of scale. In Q1, its adjusted operating margin rose over
700 basis points to 20.2%. In fiscal 2022, the company expects the
operating margin to improve by 30 basis points to 8%.
The acquisition of Slack will pose near-term declines in the
company’s bottom line. Salesforce expects adjusted earnings to
decline by 23% year over year in 2022. It means CRM stock is
trading at a forward price to earnings multiple of 64.3x. However,
its earnings are forecast to improve once the integration is
complete.
Salesforce is a company that is reasonably valued and is well
poised to deliver double-digit revenue growth in the next few
years, making it a solid bet for CY 2021 and beyond.
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