If You Like Cash Flow Machines Take A Look At CRM
Here is why we think Salesforce (CRM) is worth a look
- Cash Yield: Not many stocks offer free cash flow yield of 5.4%, but CRM does
- Fundamentals: 3-Year average revenue growth of 10.5% and operating margin of 17.8% show good fundamentals
- Valuation: While tad expensive at PE of 34.9, the combo of cash yield, growth, and margin could still get noticed
- Compared to S&P, while you get higher valuation, you further get higher revenue growth, and better LTM operating margins
Free Cash Flow Yield refers to free cash flow per share / stock price. Why it matters? If a company produces high amount of cash per share, it can be used to fuel additional revenue growth, or simply paid through dividends or buybacks to shareholders. For quick background, Salesforce provides customer relationship management technology and a platform that enables connected experiences across industries like financial services, healthcare, and manufacturing worldwide.
| CRM | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| Free Cash Flow Yield | 5.4% | 3.8% |
| Revenue Growth LTM | 8.3% | 5.1% |
| Revenue Growth 3YAVG | 10.5% | 5.3% |
| Operating Margin LTM | 21.2% | 18.6% |
| Operating Margin 3YAVG | 17.8% | 17.8% |
| PE Ratio | 34.9 | 23.8 |
But do these numbers tell the full story? Read Buy or Sell CRM Stock to see if Salesforce still has an edge that holds up under the hood.
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
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- ORCL, CRM Top Synopsys Stock on Price & Potential
- Could Cash Machine Salesforce Stock Be Your Next Buy?
- Salesforce Stock: Join the Rally at a 35% Discount
- Better Value & Growth: ORCL, CRM Lead Synopsys Stock
The Point? The Market Can Notice, And Reward
Here are some stocks that showed strong cash flow yield in mid 2024, and saw strong returns in the subsequent 12 months
- FFIV gained 70% in a year after showing a 6.9% free cash flow yield
- CSCO had 6.6% yield, and returned 50% in the next 12 months
- PM rose over 85% percent as the market noticed its 5.7% free cash flow yield and good underlying revenue growth
But Consider The Risk
Salesforce isn’t immune to big drops either. During the Global Financial Crisis, it fell about 70%. The Inflation Shock hit it with nearly a 59% loss. Even the Covid selloff and 2018 correction weren’t small—they saw dips of roughly 36% and 25%, respectively. So, while Salesforce has strong fundamentals, history shows significant declines can still happen when the market turns sour.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read CRM Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
Picking winners on a consistent basis is not an easy task – especially given the volatility associated with a single stock. Instead, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year 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.