Company / Analytics

Analytics, 04 September 2020

Is Salesforce a stock to buy?

Salesforce (CRM) stock has emerged as investors’ favorite following its impressive performance during the coronavirus outbreak. The stock hit an all-time high with shares trading at more than $283 on Tuesday. The Covid-19 pandemic-induced remote work strongly underscored the need for enterprises to put operations onto the cloud for outside-of-the-office access and Salesforce business and prominence grew during this period, with Q2 revenues hitting $5.15 billion against analysts forecast of $4.90 billion. How does the future look for Salesforce? Is it a good stock to put in your portfolio?

Background

Salesforce went public through an IPO in June 2004 and while it’s been a popular stock for investors betting on the cloud services sector, it hasn’t seen a series of dramatic rises until recently.

Like other technology stocks or businesses that provided essential services during the pandemic such as Amazon, Salesforce business became a favorite for enterprises looking for cloud computing service and these saw its revenue rise.

In its latest quarterly results, revenue exceeded analysts estimates by a huge margin: revenue increased to $5.15 billion (against analysts forecast of $4.90 billion) marking a year-over-year improvement of 29%, which is a very high number for a company that has been in business for decades. Non-GAAP (adjusted) net income rocketed even higher, rising 152% to $1.33 billion, which was nearly double the average prognosticator estimate. This figure excludes gains from changes in the value of its investment portfolio, an income tax benefit, and changes to its corporate structure.

Salesforce’s recent growth has seen the stock replace ExxonMobil in the Dow Jones Industrial Average which is a crucial benchmark of the blue-chip stock indexes. The Dow is home to just 30 stocks and is a very hard club to join. Salesforce raised its full 2021 fiscal year earnings guidance. The company now sees $3.72 to $3.74 in adjusted earnings per share and $20.70 billion to $20.80 billion in revenue, above analyst’s consensus of $2.96 in adjusted earnings per share and $20.07 billion in revenue.

Future outlook

Salesforce’s better-than-expected results across the board is a sign companies are spending on enterprise cloud computing, which should have broader implications across the software sector.

Salesforce started out as a maker of customer relationship management (CRM) software but has grown to become one of the most successful cloud computing businesses in the world. Today, Salesforce runs an entire ecosystem of cloud-based services, all with the aim of helping organizations strengthen their relationship with customers. These services can be broken down into four segment “clouds”: sales, service, platform, and marketing and commerce.

Salesforce has been one of the most successful technology vendors in the world over the past decade, and it appears its growth is gaining momentum on the backdrop of Covid-19 which has arguably forced companies to pay more attention to cloud-computing. Other cloud computing stocks such as Adobe, ServiceNow, WorkDay and Atlassian Corp. have also seen their stocks rise in recent days.

Salesforce closed its $15.7 billion takeover of data visualization company Tableau, its largest acquisition ever, last August. This will also increase its business and revenue in the future, as data analytics grows.

How did the stock move?

At $270,86, Salesforce shares are up more than 67% for the year, compared to a 7.7% rise in the S&P 500 index and a 30% gain by the tech-heavy Nasdaq Composite Index.

According to CNN Business, “38 analysts offering 12-month price forecasts for Salesforce (CRM) stock have a median target of 272.00, with a high estimate of 344.00 and a low estimate of 160.00.”

The current consensus among 42 polled investment analysts is to Buy stock in Salesforce, a rating which has remained steady since August.

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