With Strong Cash Flow, Salesforce Stock Poised to Rise?
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 -12% 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: Salesforce’s Agentforce and Data 360 offerings are gaining traction, generating nearly $1.4 billion in annual recurring revenue in Q3 FY26, up 114%. Over 9,500 paid Agentforce deals closed, a 50% quarterly increase, alongside the recent general availability of an AI-powered Slackbot. The current remaining performance obligation of $29.4 billion, up 11%, signals a solid future revenue pipeline. Full-year FY26 revenue guidance was also raised to $41.45-$41.55 billion.
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 22.0%
- Growth: Last 12 revenue growth of 8.4% – low growth, but this selection is all about high yield and margin
- Valuation: CRM stock currently trading at 36% below 2Y high, 12% below 1M high, and at a PS lower than 3Y average.
Below is a quick comparison of CRM fundamentals with S&P medians.
| CRM | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| Free Cash Flow Yield | 5.8% | 3.8% |
| Revenue Growth LTM | 8.4% | 6.4% |
| Revenue Growth 3YAVG | 10.0% | 5.7% |
| Operating Margin LTM | 22.0% | 18.8% |
| Operating Margin 3YAVG | 19.2% | 18.4% |
| PE Ratio | 30.7 | 24.3 |
*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:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Dipped last month & meaningfully below 2Y high
- Current P/S < last few year average
- Strong operating margin with no instances of large margin collapse
- 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
Stock Picking Falls Short Against Multi Asset Portfolios
Individual picks are volatile but diversified assets offset each other. A multi asset portfolio helps you stay the course capture upside and reduce downside.
The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which 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