Salesforce Stock: Why This Mega-Cap Stock Will Likely Get Even Bi…

Salesforce’s Acquisitive Nature Will Likely Pay Off with Big Gains

Game-changing companies are those with advanced technologies and the constant urge to stay on top of the competition. You can even say these vulture-like companies are the predators in their space, as is the case with salesforce.com, inc. (NYSE:CRM).

Now, I generally don’t talk about mega-cap stocks, but in this case, Salesforce deserves special attention as the best of breed in the customer relationship management (CRM) space.

With a market valuation of $114.6 billion at the time of writing, CRM stock is huge.

Salesforce is the top player in the CRM space, helping companies deal with their sales, marketing, customer service, workforce, and other business needs from its platform.

The company has been on an aggressive path over the past few years, gobbling up over 14 companies since 2016, including Salesforce’s $6.5-billion takeover of MuleSoft, Inc. in 2018. CRM is currently looking to add ClickSoftware Technologies for $1.5 billion.

CRM stock has been a stellar performer—advancing 33% over the past year— and is down a mere eight percent from its high.

The CRM stock chart shows the double bottom formation in November and December 2018, when Salesforce stock fell to around $120.00 prior to breaking higher.

Chart courtesy of StockCharts.com

Superlative Growth Bodes Well for CRM Stock

Salesforce reports in a fiscal year ending in January.

The revenue picture shows the steady and impressive growth for Salesforce since fiscal 2014.

Revenues more than doubled from $4.07 billion in fiscal 2014 to $10.48 billion in fiscal 2018, representing an impressive compound annual growth rate (CAGR) of 26.68%.

(Source: “Salesforce.com Inc.,” MarketWatch, last accessed January 18, 2019.)

The outlook looks positive with Salesforce estimated to grow revenues by 26.3% to $13.24 billion in fiscal 2019 followed by 20.8% to $15.99 billion in fiscal 2020. (Source: “salesforce.com, inc (CRM),” Yahoo! Finance, last accessed January 18, 2019.)

Salesforce is ramping up its earnings before interest, taxes, depreciation, and amortization (EBITDA), profits, and free cash flow (FCF).

EBITDA is positive with growth in four consecutive years.

(Source: MarketWatch, op cit.)

The company generated two straight years of generally accepted accounting principles (GAAP) diluted earnings after losses from fiscal 2014 to fiscal 2016.

(Source: Ibid.)

On an adjusted basis, Salesforce is seeing positive earnings revisions.

For fiscal 2019, CRM is expected to report an adjusted $2.61 per diluted share versus $1.35 per diluted share in fiscal 2018 and follow with $2.76 and as high as $2.90 per diluted share in fiscal 2020. (Source: Yahoo! Finance, op cit.)

Salesforce is generating positive FCF with growth in four straight years including $2.2 billion in fiscal 2020, which implies funds for CapEx and acquisitions.

(Source: MarketWatch, op cit.)

Analyst Take

The bull case for Salesforce stock is evident from the strong fundamentals and growth metrics.

CRM stock on the surface looks expensive trading at 54 times fiscal 2020 earnings per share, but the price/earnings-to-growth ratio of 1.76 is not unreasonable for a technology company with such growth.

The fact that short sellers are largely ignoring bearish bets on CRM stock with a mere 1.49% of the float shorted is bullish. (Source: Yahoo! Finance, op cit.)