In today's video, we're giving a quick update on Salesforce, one of my long-term stock holdings and a company I deeply appreciate for its earning potential and sustainable competitive advantage. Salesforce stands out not just for its robust business model but also because its CEO, a well-known figure, retains a significant shareholding, despite some selling as the stock has seen substantial growth. For long-term investors, Salesforce remains a compelling option.
Salesforce (CRM) Stock returns
I'll kick things off by sharing my position in Salesforce. Currently, the stock is trading at $285, up from my purchase price of $210, marking a 40% gain. In hindsight, I wish I had bought in earlier, but I was cautious, waiting for clear momentum and mindful of rising interest rates and market uncertainties. However, this has been a valuable lesson, and I'm poised to increase my holdings should the stock dip by 30 to 40%. At present, Salesforce seems slightly overvalued, which makes me hesitant to buy more at its current price.
Salesforce (CRM) stock analysis
Looking into the financials, Salesforce's price-to-earnings ratio for the next year is stated to be around 70, but in reality, it's below one, which might be appealing for long-term investors. Other financial metrics are notably high compared to the sector median, but Salesforce is truly in a league of its own, making such comparisons somewhat skewed. The company's cash flow projections are optimistic, yet I prefer a lower price-to-cash flow ratio for investment consideration.
Salesforce's total debt stands at around $30 billion, with a cash reserve of $12 billion, alleviating any short-term bankruptcy concerns. The company's growth, particularly in profit alongside revenue, is what makes Salesforce especially intriguing. Although growth is expected to slow given its current market cap of $250 billion, the potential for long-term growth remains, possibly even doubling, though the timeline is uncertain.
Profitability metrics like gross profit margin are impressively high, indicating strong potential for further revenue and profit growth. However, returns on common equity and total capital are somewhat low, warranting a deeper analysis of their trajectory over time. Salesforce's operations generate considerable cash flow, estimated to grow below 30% by 2026, which, while not stellar, is still respectable given the company's size and market position.
If the stock price experiences a significant drop, it might present a more attractive entry point, especially when compared to other high-growth opportunities like shipping stocks or Celestica, as discussed in previous videos. Diversifying into value stocks with the potential for high returns and then reallocating gains into solid companies like Salesforce for the long haul could be a strategic move.
An analysis of insider holdings reveals that the CEO, a key figure known to many in the Salesforce community, still holds a substantial amount of stock, despite recent sales. This ongoing investment by the CEO and other insiders is noteworthy, although the selling activity does suggest that a lower price point would be more enticing for potential investors.
Focusing on the stock's earnings potential and adjusted earnings correlation, Salesforce appears to be trading above its fair value, with current P/E ratios suggesting a higher valuation than might be justified. Forecasting tools predict a range of future returns, but realistically, the stock's price would need to drop significantly to offer a more appealing rate of return, given the current growth estimates.
Salesforce (CRM) stock buy or not to buy?
Conclusively, market consensus and technical analyses indicate that Salesforce is currently trading above what many consider fair value, with growth expectations potentially factoring into these valuations. A technical support line around $250 suggests a potential price correction, which would make the stock more attractive for purchase.
At this juncture, I see no compelling reason to buy more shares or sell my existing holdings. My strategy leans towards buy-and-hold, favoring minimal transactions to capitalize on long-term growth. However, I remain on the lookout for a more favorable entry point, reflecting better growth prospects or an improved valuation.
That wraps up our quick overview of Salesforce. I'm eager to hear your thoughts and insights on this company, so please share your comments below. Thanks for following, and I look forward to sharing more updates and analyses with you.
