With a notable daily gain of 9.36% and a three-month gain of 13.59%, Salesforce Inc (CRM, Financial) has been drawing attention in the market. But the question on investors' minds is whether the stock, with an Earnings Per Share (EPS) of 2.63, is fairly valued at its current price. To address this, we delve into a detailed valuation analysis, inviting readers to explore the financial intricacies of Salesforce (CRM).
Salesforce Inc provides a suite of enterprise cloud computing solutions, aiming to connect companies with their customers through its Customer 360 platform. The platform offers a single source of truth by integrating customer data across various systems, apps, and devices. Beyond its core customer relationship management technology, Salesforce offers a range of services including Service Cloud, Marketing Cloud, Commerce Cloud, and MuleSoft for data integration. With a current stock price of $251.9 and a GF Value of $269.74, understanding the fair value of Salesforce is crucial for investors. This analysis will juxtapose the company's market cap of $260.30 billion with its intrinsic valuation to provide a clear picture of its financial standing.
Summarize GF Value
The GF Value is a proprietary measure used to determine the intrinsic value of a stock like Salesforce (CRM, Financial). It takes into account historical trading multiples, a GuruFocus adjustment factor based on the company's past performance, and projected future business performance. When a stock's price aligns closely with the GF Value Line, it suggests that the stock is fairly valued. Currently, Salesforce's market cap stands at $260.30 billion, with a share price of $251.9, indicating that it is trading close to its fair value. This alignment suggests that the long-term return on Salesforce stock may mirror the rate of its business growth.
When considering an investment in Salesforce, it's imperative to assess the company's financial strength. Salesforce's cash-to-debt ratio of 0.97 positions it in a challenging spot compared to 64.82% of other companies in the Software industry. However, with an overall financial strength rating of 7 out of 10, Salesforce's financial health is deemed fair, suggesting a moderate risk of permanent loss for investors.
Profitability and Growth
Investing in consistently profitable companies like Salesforce, which boasts a high profit margin, typically poses less risk. Salesforce has maintained profitability for 7 out of the past 10 years, with a revenue of $34 billion and an operating margin of 12.98%, placing it above 77.9% of its industry peers. The company's profitability rank of 7 out of 10 reflects its solid financial performance.
Furthermore, growth is a pivotal aspect of a company's valuation. Salesforce's average annual revenue growth of 16.1% surpasses 67.3% of competitors in the Software industry, while its 3-year average EBITDA growth of 22.8% is higher than 70.73% of similar companies. This growth trajectory is a promising indicator of the company's potential to create shareholder value.
ROIC vs WACC
An essential aspect of profitability assessment is the comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). Salesforce's ROIC of 3.32 against its WACC of 10.32 suggests that it may not be generating sufficient cash flow relative to the capital invested. This comparison is crucial for investors looking to gauge the company's value creation ability.
In conclusion, Salesforce (CRM, Financial) appears to be fairly valued based on its current market position and financial health. The company's fair financial condition and profitability, coupled with its strong growth prospects, position it well within the competitive Software industry landscape. For a deeper dive into Salesforce's financials, investors can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, take a look at the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.