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Is Salesforce Stock a Buy Ahead of Q4 Earnings as Tech Stocks Soar?

Salesforce (CRM) stock popped on Thursday as it attempts to reach new 52-week highs heading into its Q4 FY24 earnings report on February 28.

The cloud software firm has also outperformed tech over the last decade and the past 12 months. The question for investors is whether they should consider buying Salesforce shares right now.

Pivoting to Profits

Salesforce is one of the pioneers of modern business software and the wider customer relationship management and software-as-a-service space. CRM’s growing portfolio supports sales, marketing, commerce, customer and client engagement, analytics, app development, and beyond.

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The company has expanded through some major acquisitions over the last several years. Salesforce’s AI efforts include working to infuse generative AI across its entire product portfolio.

Despite its focus on rolling out AI throughout the company, which is a must to compete for customers and Wall Street attention, Salesforce has focused heavily on the bottom line as rates climbed and its years of breakneck growth slow.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Salesforce has trimmed costs through job cuts and various other efforts aimed at beefing up the bottom line over the long haul. Salesforce is aiming to boost efficiency and margins and return value to shareholders via buybacks. Some investors might even be hopeful that Salesforce could at some point start paying a dividend, following in the footsteps of Meta (META).

Growth Outlook

Salesforce is projected to grow its revenue by 11% in FY24 to pull in $34.78 billion and then boost its sales by another 11% in fiscal 2025 to reach nearly $39 billion. CRM’s outlook does mark a significant slowdown from 24% average expansion in the trailing five years.

Yet, Salesforce stock surged after its third quarter results as Wall Street cheered its growing commitment to the bottom line. CRM is projected to grow its adjusted EPS by 57% in FY24 and 16% in FY25.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Salesforce has topped our EPS estimates for five years running, including an 11% average beat in the trailing four periods. Salesforce’s earnings estimates have remained mostly unchanged since its third quarter report to help it land a Zacks Rank #3 (Hold) at the moment.

Price, Technical Levels & Valuation

Salesforce stock has soared 370% in the last 10 years to blow away the Zacks Tech sector’s 270%. CRM is also up roughly 4,000% in the last 15 years to crush Microsoft’s (MSFT) 2,400%. More recently, Salesforce stock has climbed by 78% in the past 12 months to top Microsoft’s 60% and Tech’s 45%. Yet, CRM still trades over 5% below its all-time highs.

CRM is back above its 21-day moving average, having found support near that level twice in February. Salesforce is also trading solidly above its 21-week moving average and near overbought RSI levels on a historic timeframe.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Salesforces’ improved earnings outlook has CRM trading at 38.7X forward 12-month earnings. This represents a 75% discount to its 10-year median, but a 50% premium to the Zacks Tech sector.

CRM’s PEG ratio, which factors in its earnings growth outlook, currently comes in near its lowest levels since the financial crisis at 1.8. Salesforce’s PEG ratio also marks a discount to Zacks Tech sector’s 1.9 and Microsoft’s 2.0.

Bottom Line

Some investors might want to wait until after CRM’s report or a possible pullback before buying Salesforce stock considering it is trading at some rather overheated technical levels. Others, with long-term timelines, might want to consider the cloud software firm as it transitions into a stable growth firm focused on margins, profitability, and expansion. 

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