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Is Salesforce Stock a Buy, Sell or Hold at a P/E Multiple of 25.96X?
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Salesforce, Inc. (CRM - Free Report) is currently trading at an attractive valuation, with its forward 12-month price-to-earnings (P/E) ratio at 25.96, which is lower than the Zacks Computer – Software industry average of 31.71. While this makes Salesforce seem like a bargain compared to its peers, there are important factors that investors must consider to understand the stock’s potential.
Salesforce's price-to-sales (P/S) ratio also trades at a discount to the industry and sector averages. Given CRM’s attractive valuation, investors might be wondering: Is this an opportunity to buy, or are there deeper challenges that could keep the stock in check?
Image Source: Zacks Investment Research
Slowing Sales Growth Weighs on CRM Stock
Salesforce's stock has struggled over the past six months, declining by nearly 5%. This performance has affected its valuation metrics. Not only has CRM stock underperformed its industry, which saw a 2.9% gain, but it also lagged the broader Zacks Computer and Technology sector’s 11.4% increase during the same period. Key competitors like Oracle (ORCL - Free Report) , SAP SE (SAP - Free Report) and Microsoft (MSFT - Free Report) have all fared better in comparison.
6-Month Price Return Performance
Image Source: Zacks Investment Research
The slowdown in Salesforce's revenue growth is one of the primary factors contributing to its underperformance. Once known for robust double-digit growth, the company recently reported single-digit growth in the first two quarters of fiscal 2025. This is a stark contrast to the consistent 20%+ growth rates Salesforce delivered until fiscal 2022.
Ongoing economic uncertainty has led many businesses to scale back or delay investments in software, which has impacted Salesforce’s revenues. Analysts forecast that this slower growth will persist, with the Zacks Consensus Estimate pointing to mid-to-high single-digit growth for fiscal 2025 and 2026. This signals that Salesforce’s days of rapid expansion might be behind it, at least for now.
The slowdown in revenues is also affecting Salesforce’s bottom line. The company's earnings per share (EPS) are now expected to rise at a compound annual growth rate (CAGR) of just 14.6% over the next five years, a sharp decline from the 42.9% CAGR it achieved in the past five years.
Image Source: Zacks Investment Research
Salesforce’s Long-Term Prospects Remain Strong
Despite the recent slowdown, Salesforce’s long-term growth potential remains solid. It continues to dominate the customer relationship management market, where it competes directly with major players like Microsoft, Oracle and SAP. Salesforce’s wide array of customer relationship management applications and strong ecosystem of partners provide it with a significant competitive edge.
The company also pursued strategic acquisitions to enhance its product offerings and market reach. Its $27.7 billion acquisition of Slack in 2021 is a prime example. The integration of Slack into Salesforce’s customer relationship management platform has allowed the company to tap into the growing demand for digital collaboration tools, opening up new cross-selling opportunities.
More recently, in September 2024, CRM announced its acquisition of Own Company, a deal that enhances its data security capabilities. Own’s platform strengthens Salesforce’s ability to help businesses secure and manage their critical data while offering valuable insights through data analytics. This acquisition aligns with Salesforce’s strategy to expand into areas that are crucial for businesses in today’s digital-first environment. (Read more:CRM to Buy Own: Does Inorganic Growth Plan Make the Stock a Buy?)
Salesforce has made a strong push into the artificial intelligence (AI) space, which could provide a new avenue for growth. The launch of Einstein GPT in March 2023 marked Salesforce’s entry into generative AI, a rapidly growing field. With the introduction of AI Cloud in June 2023, Salesforce aims to provide AI-powered solutions that help enterprises increase productivity. This focus on AI is likely to be an important growth driver in the years ahead.
Conclusion: Hold CRM Stock for Now
While Salesforce has faced challenges in maintaining its high growth rates, its long-term prospects remain favorable. The company's leadership in the customer relationship management market, strategic acquisitions like Slack and Own and push into generative AI all provide strong growth potential for the future.
However, with slowing sales growth and earnings projections, investors may want to remain cautious in the short term. Given these mixed factors, holding on to Salesforce stock for now seems to be a prudent strategy as this Zacks Rank #3 (Hold) company continues to navigate a challenging economic environment while positioning itself for future success. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is Salesforce Stock a Buy, Sell or Hold at a P/E Multiple of 25.96X?
Salesforce, Inc. (CRM - Free Report) is currently trading at an attractive valuation, with its forward 12-month price-to-earnings (P/E) ratio at 25.96, which is lower than the Zacks Computer – Software industry average of 31.71. While this makes Salesforce seem like a bargain compared to its peers, there are important factors that investors must consider to understand the stock’s potential.
Salesforce's price-to-sales (P/S) ratio also trades at a discount to the industry and sector averages. Given CRM’s attractive valuation, investors might be wondering: Is this an opportunity to buy, or are there deeper challenges that could keep the stock in check?
Image Source: Zacks Investment Research
Slowing Sales Growth Weighs on CRM Stock
Salesforce's stock has struggled over the past six months, declining by nearly 5%. This performance has affected its valuation metrics. Not only has CRM stock underperformed its industry, which saw a 2.9% gain, but it also lagged the broader Zacks Computer and Technology sector’s 11.4% increase during the same period. Key competitors like Oracle (ORCL - Free Report) , SAP SE (SAP - Free Report) and Microsoft (MSFT - Free Report) have all fared better in comparison.
6-Month Price Return Performance
Image Source: Zacks Investment Research
The slowdown in Salesforce's revenue growth is one of the primary factors contributing to its underperformance. Once known for robust double-digit growth, the company recently reported single-digit growth in the first two quarters of fiscal 2025. This is a stark contrast to the consistent 20%+ growth rates Salesforce delivered until fiscal 2022.
Ongoing economic uncertainty has led many businesses to scale back or delay investments in software, which has impacted Salesforce’s revenues. Analysts forecast that this slower growth will persist, with the Zacks Consensus Estimate pointing to mid-to-high single-digit growth for fiscal 2025 and 2026. This signals that Salesforce’s days of rapid expansion might be behind it, at least for now.
The slowdown in revenues is also affecting Salesforce’s bottom line. The company's earnings per share (EPS) are now expected to rise at a compound annual growth rate (CAGR) of just 14.6% over the next five years, a sharp decline from the 42.9% CAGR it achieved in the past five years.
Image Source: Zacks Investment Research
Salesforce’s Long-Term Prospects Remain Strong
Despite the recent slowdown, Salesforce’s long-term growth potential remains solid. It continues to dominate the customer relationship management market, where it competes directly with major players like Microsoft, Oracle and SAP. Salesforce’s wide array of customer relationship management applications and strong ecosystem of partners provide it with a significant competitive edge.
The company also pursued strategic acquisitions to enhance its product offerings and market reach. Its $27.7 billion acquisition of Slack in 2021 is a prime example. The integration of Slack into Salesforce’s customer relationship management platform has allowed the company to tap into the growing demand for digital collaboration tools, opening up new cross-selling opportunities.
More recently, in September 2024, CRM announced its acquisition of Own Company, a deal that enhances its data security capabilities. Own’s platform strengthens Salesforce’s ability to help businesses secure and manage their critical data while offering valuable insights through data analytics. This acquisition aligns with Salesforce’s strategy to expand into areas that are crucial for businesses in today’s digital-first environment. (Read more: CRM to Buy Own: Does Inorganic Growth Plan Make the Stock a Buy?)
Salesforce has made a strong push into the artificial intelligence (AI) space, which could provide a new avenue for growth. The launch of Einstein GPT in March 2023 marked Salesforce’s entry into generative AI, a rapidly growing field. With the introduction of AI Cloud in June 2023, Salesforce aims to provide AI-powered solutions that help enterprises increase productivity. This focus on AI is likely to be an important growth driver in the years ahead.
Conclusion: Hold CRM Stock for Now
While Salesforce has faced challenges in maintaining its high growth rates, its long-term prospects remain favorable. The company's leadership in the customer relationship management market, strategic acquisitions like Slack and Own and push into generative AI all provide strong growth potential for the future.
However, with slowing sales growth and earnings projections, investors may want to remain cautious in the short term. Given these mixed factors, holding on to Salesforce stock for now seems to be a prudent strategy as this Zacks Rank #3 (Hold) company continues to navigate a challenging economic environment while positioning itself for future success. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.