Salesforce.com’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 that these vulture-like companies are the predators in their industries, as is the case with salesforce.com, inc. (NYSE:CRM).
Now, I generally don’t talk about mega-cap stocks, but 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 this writing, CRM stock is huge.
Salesforce is the top player in the CRM sector, helping companies deal with their sales, marketing, customer service, workforce, and other business needs.
The company has been on an aggressive acquisition path over the past few years, gobbling up more than 14 companies since 2016, including salesforce.com’s $6.5-billion takeover of MuleSoft in 2018. Salesforce 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 being down only a mere eight percent from its high.
The Salesforce stock chart shows the double bottom formation in November and December 2018, when the stock fell to around $120.00 prior to breaking higher.
Chart courtesy of StockCharts.com
Superlative Growth Bodes Well for CRM Stock
Salesforce.com’s revenue picture shows steady and impressive growth since fiscal-year 2014.
Revenue more than doubled from fiscal-year 2014 to fiscal-year 2018, with an impressive compound annual growth rate (CAGR) of almost 26.7%.
|Fiscal Year||Revenue (Billions)||Growth|
(Source: “Salesforce.com Inc.,” MarketWatch, last accessed January 18, 2019.)
The outlook looks positive, with salesforce.com estimated to grow revenue by 26.3% to $13.2 billion in fiscal-year 2019 and by 20.8% to almost $16.0 billion in fiscal-year 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), its profits, and its free cash flow (FCF).
The company’s EBITDA has been positive, with growth in four consecutive years.
|Fiscal Year||EBITDA (Millions)||Growth|
(Source: MarketWatch, op cit.)
The company generated two straight years of generally accepted accounting principles (GAAP) diluted earnings after losses from fiscal-year 2014 to fiscal-year 2016.
|Fiscal Year||GAAP Diluted EPS||Growth|
On an adjusted basis, salesforce.com is seeing positive earnings revisions.
For fiscal-year 2019, the company is expected to report an adjusted $2.61 per diluted share, versus $1.35 per diluted share in fiscal-year 2018. Its expected to follow that up with $2.76 per diluted share in fiscal-year 2020. (Source: Yahoo! Finance, op cit.)
Salesforce has been generating positive FCF, with growth in four straight years, including $2.2 billion in fiscal-year 2020. That implies there are funds for capital expenditure and acquisitions.
|Fiscal Year||Free Cash Flow (Millions)||Growth|
(Source: MarketWatch, op cit.)
The bull case for Salesforce stock is evident from the strong fundamentals and growth metrics.
On the surface, the stock looks expensive, trading at 54 times the fiscal-year 2020 earnings per share, but the price/earnings-to-growth ratio of 1.76 is reasonable for a technology company with such growth.
The fact that short sellers are largely ignoring bearish bets on CRM stock (with a mere 1.5% of the float shorted) is bullish. (Source: Yahoo! Finance, op cit.)