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Salesforce (CRM) Dips 8% in 3 Months: What Should Investors Do Now?
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Salesforce, Inc. (CRM - Free Report) has seen its stock tumble more than 8% over the past three months, significantly underperforming the broader market. During this period, the S&P 500 and the Zacks Computer and Technology sector both posted gains of over 4%, making Salesforce's decline all the more concerning.
Even within its own industry, the Zacks Computer – Software, Salesforce lags behind key competitors like Oracle Corporation (ORCL - Free Report) and SAP SE (SAP - Free Report) , whose shares have risen more than 10% in the same period.
Given Salesforce's reputation as a leader in the customer relationship management space, this underperformance is disappointing. This raises a crucial question for investors — Is it time to sell Salesforce stock?
3-Month Price Return Performance
Image Source: Zacks Investment Research
Slowing Sales Growth: A Major Red Flag
One of the most alarming trends for Salesforce is its slowing sales growth. The company, once a beacon of robust double-digit revenue increases, is now grappling with a significant deceleration. In the first quarter of fiscal 2025, Salesforce reported a sales growth rate that barely reached the low double digits, a far cry from the more than 20% growth it consistently delivered until fiscal 2022.
This slowdown is not just a temporary blip but reflects deeper issues within the company and the broader market. Enterprises are becoming more cautious with their IT spending, delaying large-scale investments due to ongoing macroeconomic uncertainties and geopolitical tensions. Salesforce, like many other tech companies, is feeling the pinch.
But there's more to the story. Salesforce has shifted its focus from aggressive growth to margin improvement, a strategy that has involved significant cost-cutting measures, including layoffs. While these moves have boosted profitability in the short term, they have also led to reduced investments in critical areas like sales and marketing, further contributing to the slowdown in sales growth.
The current Zacks Consensus Estimate paints a concerning picture, predicting that Salesforce’s top-line growth will slow even further, settling into a mid-to-high single-digit percentage range for fiscal 2025 and 2026.
Image Source: Zacks Investment Research
The deceleration in revenue growth is expected to drag down Salesforce’s earnings growth as well. The company’s earnings per share (EPS) is now projected to witness a CAGR of just 15.3% over the next five years, a sharp decline from the 42.9% CAGR it achieved in the previous five years.
Image Source: Zacks Investment Research
Rising Competition: A Growing Threat
Salesforce's challenges are compounded by intensifying competition from other major players in the CRM and cloud computing markets. Microsoft Corporation (MSFT - Free Report) , Oracle and SAP are ramping up their efforts to capture a larger share of this lucrative market, and they are making significant inroads.
Microsoft's Dynamics 365 is gaining popularity, especially among enterprises already entrenched in the Microsoft ecosystem. Oracle and SAP, with their deep roots in enterprise software, are also formidable competitors, offering integrated solutions that appeal to large organizations. Meanwhile, newer entrants in the CRM space are introducing innovative features and competitive pricing, further squeezing Salesforce's market share.
The competition is not just about capturing new customers but retaining existing ones. If Salesforce fails to keep up with the innovations and pricing strategies of its rivals, it risks losing clients to these aggressive competitors. This competitive pressure adds another layer of risk to Salesforce's long-term growth prospects, making its path forward increasingly uncertain.
Conclusion: Is It Time to Sell?
Given the challenges Salesforce is facing, it might be time for investors to reconsider their position. The company’s slowing sales growth and the looming threat of fierce competition from tech giants like Microsoft, Oracle and SAP are serious concerns that cannot be ignored. The bearish sentiment is further underscored by Salesforce's underperformance relative to the broader market and its peers.
Holding on to Salesforce stock in the current environment could mean riding out a prolonged period of underperformance. For investors looking to maximize returns, selling the shares of this Zacks Rank #4 (Sell) company now could be a prudent move.
Image: Bigstock
Salesforce (CRM) Dips 8% in 3 Months: What Should Investors Do Now?
Salesforce, Inc. (CRM - Free Report) has seen its stock tumble more than 8% over the past three months, significantly underperforming the broader market. During this period, the S&P 500 and the Zacks Computer and Technology sector both posted gains of over 4%, making Salesforce's decline all the more concerning.
Even within its own industry, the Zacks Computer – Software, Salesforce lags behind key competitors like Oracle Corporation (ORCL - Free Report) and SAP SE (SAP - Free Report) , whose shares have risen more than 10% in the same period.
Given Salesforce's reputation as a leader in the customer relationship management space, this underperformance is disappointing. This raises a crucial question for investors — Is it time to sell Salesforce stock?
3-Month Price Return Performance
Image Source: Zacks Investment Research
Slowing Sales Growth: A Major Red Flag
One of the most alarming trends for Salesforce is its slowing sales growth. The company, once a beacon of robust double-digit revenue increases, is now grappling with a significant deceleration. In the first quarter of fiscal 2025, Salesforce reported a sales growth rate that barely reached the low double digits, a far cry from the more than 20% growth it consistently delivered until fiscal 2022.
This slowdown is not just a temporary blip but reflects deeper issues within the company and the broader market. Enterprises are becoming more cautious with their IT spending, delaying large-scale investments due to ongoing macroeconomic uncertainties and geopolitical tensions. Salesforce, like many other tech companies, is feeling the pinch.
But there's more to the story. Salesforce has shifted its focus from aggressive growth to margin improvement, a strategy that has involved significant cost-cutting measures, including layoffs. While these moves have boosted profitability in the short term, they have also led to reduced investments in critical areas like sales and marketing, further contributing to the slowdown in sales growth.
The current Zacks Consensus Estimate paints a concerning picture, predicting that Salesforce’s top-line growth will slow even further, settling into a mid-to-high single-digit percentage range for fiscal 2025 and 2026.
Image Source: Zacks Investment Research
The deceleration in revenue growth is expected to drag down Salesforce’s earnings growth as well. The company’s earnings per share (EPS) is now projected to witness a CAGR of just 15.3% over the next five years, a sharp decline from the 42.9% CAGR it achieved in the previous five years.
Image Source: Zacks Investment Research
Rising Competition: A Growing Threat
Salesforce's challenges are compounded by intensifying competition from other major players in the CRM and cloud computing markets. Microsoft Corporation (MSFT - Free Report) , Oracle and SAP are ramping up their efforts to capture a larger share of this lucrative market, and they are making significant inroads.
Microsoft's Dynamics 365 is gaining popularity, especially among enterprises already entrenched in the Microsoft ecosystem. Oracle and SAP, with their deep roots in enterprise software, are also formidable competitors, offering integrated solutions that appeal to large organizations. Meanwhile, newer entrants in the CRM space are introducing innovative features and competitive pricing, further squeezing Salesforce's market share.
The competition is not just about capturing new customers but retaining existing ones. If Salesforce fails to keep up with the innovations and pricing strategies of its rivals, it risks losing clients to these aggressive competitors. This competitive pressure adds another layer of risk to Salesforce's long-term growth prospects, making its path forward increasingly uncertain.
Conclusion: Is It Time to Sell?
Given the challenges Salesforce is facing, it might be time for investors to reconsider their position. The company’s slowing sales growth and the looming threat of fierce competition from tech giants like Microsoft, Oracle and SAP are serious concerns that cannot be ignored. The bearish sentiment is further underscored by Salesforce's underperformance relative to the broader market and its peers.
Holding on to Salesforce stock in the current environment could mean riding out a prolonged period of underperformance. For investors looking to maximize returns, selling the shares of this Zacks Rank #4 (Sell) company now could be a prudent move.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.