While the broader macroeconomic challenges have kept the tech industry under pressure since last year, rapid digitalization and increasing demand for advanced technologies should help the industry rebound in the foreseeable future. Given this backdrop, I think Salesforce, Inc. (CRM) might be worth investing in right now for reasons mentioned throughout this piece.
The Fed’s aggressive interest rate hikes to tame sky-high inflation have created massive pressure on the tech industry by making borrowing costlier. The tech-heavy Nasdaq Composite plunged 12.3% over the past year. However, with an increasing focus on emerging technologies such as Artificial Intelligence, cloud computing, Robotic Process Automation, AR, and VR, the industry is well-positioned to witness significant growth.
Cloud-based software company CRM looks well-positioned to capitalize on the industry’s rebound. The company reported better-than-projected fiscal fourth quarter results. CRM’s revenue has grown at 22.4% and 24.4% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 29.5% and 58.9% CAGRs over the past three years, respectively.
On March 2, 2023, CRM launched the Hyperforce EU Operating Zone, enabling global customers to store and process their data in the European Union. This cloud platform would combine CRM’s industry-leading products with 24/7 customer and technical support delivered by EU-based personnel. Also, it empowers customers with increased control of their data — to be accessed when, where, and how they intend.
On January 12, CRM announced a series of innovations to help retailers grow and optimize advertising sales, gain a single view of transactions across digital and physical stores, and unlock value from their customer data.
Jujhar Singh, EVP and GM of CRM, said, "Salesforce for retail brings together the power and flexibility of Salesforce's platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency."
For the fiscal first quarter ending April 2023, CRM expects revenue to be between $8.16 and $8.18 billion. Its non-GAAP earnings per share are expected to come in between $1.60 to $1.61.
The stock has gained 37.9% over the past three months and 12.7% over the past five days to close its last trading session at $183.80. Wall Street analysts expect the stock to reach $223.38 in the upcoming 12 months, indicating a potential upside of 21.5%.
Here are the factors that could influence CRM’s performance in the upcoming months:
Solid Financials
For the fiscal fourth quarter that ended January 31, 2023, CRM’s total revenues increased 14.4% year-over-year to $8.38 billion. Non-GAAP income from operations rose 123.3% from the prior-year quarter to $2.45 billion. Non-GAAP net income and non-GAAP EPS came in at $1.66 billion and $1.68, up 96.4% and 100% year-over-year, respectively.
Robust Profitability
CRM’s trailing-12-month gross profit margin of 73.34% is 49.1% higher than the industry average of 49.19%. Also, its trailing-12-month EBITDA margin and levered FCF margin of 18% and 33.99% are 60.5% and 404.8% higher than the industry averages of 11.22% and 6.73%, respectively.
Optimistic Analyst Estimates
For the fiscal first quarter ending April 2023, analysts expect CRM’s EPS to increase 64.6% year-over-year to $1.61. Street expects its revenue to increase 10.2% year-over-year to $8.17 billion for the same quarter.
Moreover, for the fiscal year ending January 2024, its EPS and revenue are expected to increase 36.1% and 10.4% year-over-year to $7.13 and $34.61 billion, respectively. CRM topped consensus EPS and revenue estimates in all four trailing quarters.
POWR Ratings Reflect Promising Prospects
CRM’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating 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 is rated an A for Sentiment, justified by optimistic analyst estimates.
It also has an A grade for Growth, consistent with exceptional historical and projected growth of its financials.
Within the 136-stock Software – Application industry, it is ranked #18.
To see additional POWR Ratings for Value, Stability, Quality, and Momentum for CRM, click here.
View all the top stocks in the Software – Application industry here.
Bottom Line
CRM is poised to witness significant growth, given the company’s solid financials and efforts to help its customers worldwide succeed in their digital transformation. Given its impressive profitability and growth prospects, CRM could be a solid investment now.
How Does Salesforce, Inc. (CRM) Stack up Against Its Peers?
While CRM has an overall POWR Rating of B, one might want to consider looking at its industry peers, eGain Corporation (EGAN), IBEX Limited (IBEX), and Open Text Corporation (OTEX), which have an overall A (Strong Buy) rating.
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CRM shares were trading at $184.05 per share on Tuesday morning, up $0.25 (+0.14%). Year-to-date, CRM has gained 38.81%, versus a 4.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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