Salesforce, Inc. (CRM)

Equity
US
Technology

RISK

RETURN

Key risk factors

Strong trading liquidity

Low price volatility

Resilient to price shocks

Key return factors

Strong growth

Greatly overvalued vs peers

Low dividends

Company profileSalesforce, Inc. provides customer relationship management technology that brings companies and customers together worldwide. Its Customer 360 platform empowers its customers to work together to deliver connected experiences for their customers. The company's service offerings include Sales to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence, and deliver quotes, contracts, and invoices; and Service that enables companies to deliver trusted and highly personalized customer service and support at scale. Its service offerings also comprise flexible platform that enables companies of various sizes, locations, and industries to build business apps to bring them closer to their customers with drag-and-drop tools; online learning platform that allows anyone to learn in-demand Salesforce skills; and Slack, a system of engagement. In addition, the company's service offerings include Marketing offering that enables companies to plan, personalize, and optimize one-to-one customer marketing journeys; and Commerce offering, which empowers brands to unify the customer experience across mobile, web, social, and store commerce points. Further, its service offerings comprise Tableau, an end-to-end analytics solution serving various enterprise use cases; and MuleSoft, an integration offering that allows its customers to unlock data across their enterprise. The company provides its service offering for customers in financial services, healthcare and life sciences, manufacturing, and other industries. It also offers professional services; and in-person and online courses to certify its customers and partners on architecting, administering, deploying, and developing its service offerings. The company provides its services through direct sales; and consulting firms, systems integrators, and other partners. Salesforce, Inc. was incorporated in 1999 and is headquartered in San Francisco, California.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

63.90

PEG

3.30

P/B

4.40

4.10

P/S

7.60

P/FCF

27.80

18.50

EV/EBITDA

23.50

60.50

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and trading at neutral levels on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 17ppts and its growth decelerated by 2ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 330 and suggests 21% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 390.0. This translates into 43% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 231.0. This is equivalent to 15% downside potential in the worst case.

Profitability: Modest

RoE

Salesforce, Inc. reported a return on equity (RoE) of 6.9% in the last 12 months, down from 7.0% in FY23. The market consensus projects an RoE of 18.4% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 4.0% in the last 12 months, a decrease from 4.1% in FY23. The market analysts predict that RoA will be 10.6% in FY24, more robust than its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 5.4%, below the peers. The consensus estimate for FY24 for RoCE is 24.5%, however, this time ahead of the peers.

Net margin

EBITDA margin

Historically, CRM has reported good net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 11.9%, a growth from 0.7% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 33.0% in the last 12 months, up from 21.4% in FY22.

RoIC / WACC = 0.5(weak value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.5 in the past several years. This ratio implies a weak shareholder value creation.

Growth: Strong

Revenue

EBITDA

EPS

Free cash flow

CRM reported revenue of USD 34 857mn in the last 12 months, up 11% from FY22. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 1 954% from FY22 to USD 4.25. Market expects EPS to reach USD 4.24641 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of EPS and EBITDA. On the positive side, revenue dynamics is very stable.

Dividends: Low

The company pays dividends on rare occasions. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers.

Default risk: Moderate

The risk of default is moderate. We note robust profitability, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, negligible return on capital, excessive margin volatility, and poor working capital management.

Volatility: Low

In normal market circumstances, CRM is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from limited to mild.

Stress-test: Resilient

In highly turbulent market conditions, CRM is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.

Selling difficulty: Very low

CRM boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.