Up 74% Since The Beginning of 2023, Will Salesforce Stock Continue Its Strong Rally?

-16.29%
Downside
286
Market
240
Trefis
CRM: Salesforce logo
CRM
Salesforce

Salesforce stock (NYSE: CRM) has gained 74% YTD, as compared to the 19% rise in the S&P500 over the same period. Further, at its current price of $230 per share, it is trading 4% below its fair value of $240 – Trefis’ estimate for Salesforce’s valuation

Amid the current financial backdrop, CRM stock has seen little change, moving slightly from levels of $225 in early January 2021 to around $230 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Overall, the performance of CRM stock with respect to the index has been quite volatile. Returns for the stock were 14% in 2021, -48% in 2022, and 74% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that CRM underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CRM face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company surpassed the consensus estimates in the third quarter of FY 2024 (FY Feb-Jan), with revenues increasing by 11% y-o-y to $8.72 billion. It was driven by a 13% growth in the subscription & support revenues, partially offset by a 4% drop in the professional services & other segment. The subscription & support unit contributes more than 90% of the top line and includes five sub-segments – sales cloud (up 10%), service cloud (11%), platform and other (11%), marketing & commerce (8%), and data (up 22%). On the cost front, total expenses as a % of revenues witnessed a favorable decrease in the quarter. Overall, the net income improved from $210 million to $1.22 billion. 

Relevant Articles
  1. Salesforce Stock Is Undervalued
  2. Salesforce Stock To Edge Past The Consensus In Q1
  3. Salesforce Stock Is Trading Below Its Fair Value
  4. What To Expect From Salesforce Stock In Q4?
  5. What To Expect From Salesforce Stock In Q3?
  6. Forecast Of The Day: Salesforce Cloud-Based CRM Revenue

The company’s top line grew 11% y-o-y to $25.6 billion in the first nine months of FY 2024. It was primarily because of a 12% rise in the subscription & support division. Further, the operating margin jumped from 2.9% to 13.3% over the same period, due to lower expense figures. This resulted in a net income of $2.7 billion, as compared to the figure of $306 million in the year-ago period.

Moving forward, the firm expects the revenues to remain between $9.18-$9.23 billion in Q4. Overall, Salesforce’s revenues are estimated to touch $34.76 billion in FY2024. Additionally, CRM’s revenue per share (RPS) is likely to increase to $33.85. This coupled with a P/S multiple of just above 7x will lead to a valuation of $240.

 Returns Nov 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CRM Return 15% 74% 236%
 S&P 500 Return 9% 19% 103%
 Trefis Reinforced Value Portfolio 8% 27% 553%

[1] Month-to-date and year-to-date as of 11/30/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates