Unraveling the Investment Potential
Salesforce (NYSE:CRM) unleashed its fiscal Q3 2024 results, sending shockwaves through the market. While it may not have cracked the exclusive “magnificent 7” club, the company’s financial prowess cannot be overlooked.
Unlike its peers, Salesforce stands tall by consistently churning out substantial cash flows and profits. Stripped of stock-based compensation, the company delivers admirable GAAP operating profits.
The current valuation of approximately 20x to 23x next year’s EPS makes Salesforce an incredibly enticing buy.
In a previous bullish analysis in August, it was noted that Salesforce’s acknowledgment of an ebbing growth rate was countered by the potential productivity gains from AI adoption. This foresight pointed to relentless growth and boosted investor confidence.
Salesforce’s forward-thinking strategy and underestimated valuation further validate its investment appeal.
Despite initial skepticism, Salesforce’s long-term potential remains grossly undervalued.
Retrospectively, it’s evident that the earlier bullish stance on Salesforce has been validated and vindicated, with the stock poised to make up for previous underperformance.
As skeptics transition into believers and buyers, Salesforce’s trajectory is set for a definitive upward swing.
Bright Horizon for Salesforce
Salesforce’s near-term outlook is buoyant, underpinned by its expansive repertoire of products and strategic initiatives. The robust Q3 performance underscores Salesforce’s adeptness in driving constant and profitable expansion.
MuleSoft, a pivotal component in Salesforce’s growth blueprint, continues to exhibit strong momentum. Its data integration platform has emerged as an indispensable tool for businesses venturing into AI and digital transformation.
Salesforce’s emphasis on data, AI, CRM, and trust solidifies its position at the vanguard of innovation. Furthermore, its multi-cloud approach, prevalent in nine of the top ten deals, exemplifies the flexibility and scalability of its offerings.
Though the financial domain poses near-term challenges, driven particularly by restructuring charges, Salesforce’s successful revenue and margin growth affirm its resilient profitable trajectory.
Sustained Revenue Growth
Salesforce continues to deliver robust revenue growth, despite a marginal dip from the heady 20% annual rates. This narrative, however, finds its zenith in the bottom line.
Untangling CRM Stock Valuation
The crème de la crème of Salesforce’s Q3 beans was its meteoric surge in non-GAAP operating profit margins, escalating by 850 basis points from the previous year. This resounding success positions Salesforce to sustain a remarkable 32% to 33% of non-GAAP operating margins in the upcoming fiscal year, marking a watershed moment in its pursuit of profitability.
Irrespective of the flak Salesforce receives regarding its generous stock-based compensation, there’s no overlooking the substantial improvement in its GAAP operating margins.
Salesforce’s CFO Amy Weaver emphasized a steadfast focus on stock-based compensation at approximately 8% of revenue, projecting the possibility of clean GAAP operating margins hitting the 20% benchmark. This leapfrogs Salesforce into the echelons of premium businesses.
Anticipating a substantial uptick in EPS, coupled with stringent cost measures, Salesforce is poised to generate approximately $10.70 of EPS in the upcoming fiscal year, translating into an appealing 20x to 23x next year’s EPS valuation, including the added bonus of stock repurchases.
To encapsulate, Salesforce’s near-term trajectory shines brightly, fueled by strategic initiatives and a robust product portfolio. The compelling Q3 performance, buoyed by the sustained momentum of MuleSoft, accentuates Salesforce’s exceptional capacity for consistent and profitable expansion.
Peering into the valuation parlance, Salesforce’s stock presents an alluring prospect, ranging approximately from 20x to 23x next year’s EPS. The company’s unwavering commitment to profitability is underscored by the expansion of non-GAAP operating margins, surging to 31.2% in fiscal Q3, marking a spectacular 850 basis point rise year-over-year. The expectation of prudent financial management, marked by stock-based compensation at around 8% of revenue, foretells a promising future for investors.
With the potential for clean GAAP operating margins hitting 20%, Salesforce emerges as a paragon of top-tier excellence. The anticipation of continued growth, coupled with disciplined capital allocation and share repurchases, positions the stock advantageously, presenting a compelling investment opportunity.