Despite macroeconomic headwinds dampening the growth of the tech industry over the past year, the industry is witnessing rapid advancements that could propel its prospects in the long term. Following its solid first-quarter performance, let’s evaluate whether Salesforce, Inc. (CRM) could be worth investing in.
The company shows remarkable prospects in its Artificial Intelligence (AI) operations. On May 4, 2023, CRM announced Slack GPT, a new conversational AI experience natively integrated into Slack that will transform how work gets done.
Slack GPT is anticipated to deliver the ability to use generative AI app integrations, different language models, and the power to tap into secure customer data insights from the Customer 360 and Data Cloud.
CRM Chair and CEO, Marc Benioff stated, “Salesforce's generative AI ecosystem wields Einstein GPT, Slack GPT, and Tableau GPT, delivering trusted power across our product portfolio. Our Salesforce GPT Trust Layer will shield customer data, enabling productive automation and intelligent enterprise enhancements securely."
For the fiscal second quarter ending April 2023, CRM expects revenue to be between $8.51 and $8.53 billion. Its non-GAAP earnings per share are expected to come in between $1.89 to $1.90.
CRM’s stock has gained 58.3% year-to-date and 12.6% over the past three months to close its last trading session at $210.68. Additionally, Wall Street analysts expect the stock to hit $238.40 in the near term, indicating a potential upside of 13.3%.
Here are some factors that could influence CRM’s performance in the upcoming months:
Robust Financials
For the fiscal first quarter that ended April 30, 2023, CRM’s total revenues increased 11.3% year-over-year to $8.25 billion. The company’s non-GAAP income from operations increased 73.9% over the prior-year quarter to $2.27 billion.
Its non-GAAP net income increased 70.5% year-over-year to $1.67 billion. In addition, its non-GAAP net EPS came in at $1.69, representing a 72.4% increase year-over-year.
Strong Historical Growth
CRM’s revenue grew at a CAGR of 20.9% over the past three years. Its EBITDA grew at a CAGR of 37.2% over the past three years. In addition, its total assets grew at a CAGR of 20.4% over the same period.
High Profitability
In terms of the trailing-12-month gross profit margin, CRM’s 73.8% is 50.6% higher than the industry average of 48.99%. Its 20.63% trailing-12-month EBITDA margin is 150% higher than the industry average of 8.25%. Likewise, its 35.05% trailing-12-month levered FCF margin is 376.1% higher than the 7.36% industry average.
Favorable Analyst Estimates
The consensus EPS estimate of $7.42 for the fiscal year 2024 represents a 41.6% improvement year-over-year. The consensus revenue estimate of $34.65 billion for the same year indicates a 10.5% increase from the prior year.
Its EPS for fiscal 2025 is expected to increase 21% year-over-year to $8.97, while its revenue is expected to increase 10.9% year-over-year to $38.41 billion.
CRM's EPS and revenue for the quarter ending July 31, 2023, are expected to increase 58.8% and 10.4% year-over-year to $1.89 and $8.53 billion, respectively.
POWR Ratings Show Promise
It’s no surprise that CRM has an overall A rating, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has an A grade for Growth, consistent with its strong historical growth. It has a B grade for Sentiment, in sync with its favorable analyst estimates. Also, its B grade for Quality is justified by its robust profitability.
Within the Software - Application industry, CRM is ranked #9 out of 134 stocks.
Click here to access CRM ratings for Value, Momentum, and Stability.
Bottom Line
Despite a turbulent macroeconomic scenario, CRM reported solid performance in the first quarter. Its generative AI ecosystem shows a lot of promise, offering security to its customers. It has also raised its guidance for the following quarter.
Given its robust financials, strong historical growth, optimistic analyst estimates, and high profitability, the stock could be a hot buy now.
How Does Salesforce, Inc. (CRM) Stack Up Against Its Peers?
CRM has an overall POWR Ratings grade of A, equating to a Strong Buy. Check out these other stocks within the Software - Application industry with A (Strong Buy) or B (Buy) ratings: eGain Corporation (EGAN), TeamViewer SE (TMVWY), and Progress Software Corporation (PRGS).
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CRM shares were trading at $212.52 per share on Tuesday afternoon, up $2.66 (+1.27%). Year-to-date, CRM has gained 60.28%, versus a 12.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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