The cloud-based business software firm is one of the last big names in tech left to report its first quarter earnings results, alongside the likes of Nvidia NVDA. Salesforce (NYSE:CRM) CRM stock has moved roughly sideways in 2021 to lag the tech space and the S&P 500’s 11 climb even though it is coming off a record-breaking year.
So let’s look at Salesforce stock ahead of its Q1 FY22 financial release on Thursday, May 27 to see if it might be worth buying on the dip.
Growth Basics
Salesforce helped create the software-as-a-service industry that has been booming for years. CRM’s cloud-based customer relationship management services offer clients a range of tools and applications to help run everything from sales and e-commerce to marketing and analytics. And the pandemic highlighted the importance of the space.
The company posted record sales last year, with revenue up 24% to $21.3 billion, to crack $20 billion for the first time ever. CRM also raised its guidance to help showcase that SaaS is ready to keep growing as businesses of all shapes and sizes adapt to the digital age and rely on various software to help them do just about everything.
Zacks estimates call for Salesforce’s fiscal 2022 revenue to climb another 21% to $25.7 billion, with FY23 projected to jump 19% higher to come in at $30.5 billion. Meanwhile, its adjusted FY22 earnings are projected to fall 30% to $3.44 a share, with FY23 then set to bounce 18% above our current-year estimate.
The company boasts a solid history of quarterly earnings beats, including a 73% average in the trailing four periods. Yet CRM’s earnings revisions have remained stagnant recently to help it land a Zacks Rank #3 (Hold), alongside a “D” grade for Momentum in our Style Scores system.
What Else
Salesforce made a splash in December when it announced its $28 billion deal—which is the second-largest in software history—to buy Slack WORK. Some Wall Street analysts think Salesforce overpaid for the work-focused communication firm. But clearly CRM’s executive team, who paid $15 billion in 2019 for data-analytics platform Tableau, believe Slack will prove vital in the digital-heavy business world.
The definitive agreement to acquire Slack is a bet that the business world is moving toward work from anywhere mode. The new hybrid environment puts an emphasis on non-email communication and should help Salesforce compete against Microsoft MSFT, Zoom Video ZM, and others.
Despite all of the positives and its standing in the booming and vital cloud software industry, Salesforce stock has lagged the broader Zacks tech sector over the last three years. The stock closed regular trading Thursday at around $224 a share, or about 20% below its September 2020 records. And it has failed to regain any real momentum so far this year.
CRM sits at around a 53 in terms of the Relative Strength Index, which puts it right near neutral levels. On the valuation side, Salesforce is trading in line with its industry at 7.5X forward 12-month sales. But it still trades at sky-high valuations in terms of forward earnings and it does not yet pay a dividend as it focuses on growth.
Bottom Line
The Nasdaq jumped on Thursday to right near its 50-day moving average, as bullish tech investors keep buying the dips.
Some might want to wait for Salesforce to report before diving into the underperforming stock to see how Wall Street reacts. That said, 17 of the 23 brokerage recommendations Zacks has for CRM are “Strong Buys,” with the other at “Holds.”
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