Could Cash Machine Salesforce Stock Be Your Next Buy?

Salesforce (CRM) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market

What Is Happening With CRM

CRM may be down -32% so far this year but is now trading at P/S (Price-to-Sales) ratio that is at a meaningful discount to its 3-month and 2-year highs, and also belowits 3-year average.

The stock may not reflect it yet, but here is what’s going well for the company. While revenue growth has moderated to single digits, Salesforce’s Data Cloud saw 140% customer adoption growth in Q2 FY26, with over half the Fortune 500 leveraging the platform. Recent Q3 FY25 results also showed AI-related orders, driven by Agentforce, increasing over 200% year-over-year. The company raised its full-year FY25 revenue guidance and projects 20% growth for FY26. Integrating Data Cloud with products like Slack is enhancing enterprise value, despite competition from Microsoft and Snowflake.

CRM Has Good Fundamentals

• Good Cash Yield: Not many stocks offer free cash flow yield of 5.8%, but Salesforce stock does
• Strong Margin: Last 12 month operating margin of 21.2%
• Growth: Last 12 revenue growth of 8.3% – low growth, but this selection is all about high yield and margin
• Valuation: CRM stock currently trading at 38% below 2Y high, 14% below 1M high, and at a PS lower than 3Y average.

Below is a quick comparison of CRM fundamentals with S&P medians.

*LTM: Last Twelve Months

But What Is The Risk Involved?

While CRM stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Salesforce took a hit of about 70% during the Global Financial Crisis, 59% in the inflation shock, and 36% in the Covid pandemic. The 2018 correction wasn’t kind either, with the stock dropping nearly 25%. No matter how strong the company looks on paper, these dips show that even solid stocks can take big hits when the market turns. 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.

For more details and our view, see Buy or Sell CRM Stock.

Stocks Like CRM

Not ready to act on CRM? Consider these alternatives:

1. PayPal (PYPL)
2. Global Payments (GPN)
3. Zimmer Biomet (ZBH)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Dipped last month & meaningfully below 2Y high
3. Current P/S < last few year average
4. Strong operating margin with no instances of large margin collapse
5. High free cash flow yield

A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:

• Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
• Win rate (percentage of picks returning positive) of about 74% for 12-month period
• Strategy consistent across market cycles

Smart Investing Begins With Portfolios

Individual stocks are unpredictable. A smart portfolio keeps you invested, limits downside shocks, and provides upside exposure

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. 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.