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Salesforce: A Highly Profitable Market Leader
Stock Analysis & Ideas

Salesforce: A Highly Profitable Market Leader

Salesforce (CRM) is a leading provider of customer relationship management software through the cloud. Over 150,000 companies utilize Salesforce’s products. The company has been public since 2004.

I am bullish on CRM stock. (See Analysts’ Top Stocks on TipRanks)

Salesforce Is the Market Leader

Salesforce offers a host of products for their customers’ digital headquarters. Their products include Salesforce Customer 360, Tableau, and Slack. Their products are used for sales, services, marketing, commerce, intercompany communication, and many others. According to the company, Salesforce owns a nearly 20% market share globally among customer relationship management software providers. In second place Oracle (ORCL) and SAP (SAP) are tied with less than 5% market share each.

Salesforce is also looking ahead to the metaverse. Here, employees can work from anywhere and still engage with each other and with customers through digital representations of themselves.

Salesforce believes the workplace has undergone a permanent shift from a physical headquarters model to a digital headquarters model. They’re right; the only question is how quickly companies will adapt. Salesforce is not just a COVID-19 play. The company was growing prior to the pandemic and will still be growing after the pandemic.

Generous Cash Flows

The company’s annual revenue growth rate as exceeded, or been near, 25% for each of the last five fiscal years. From the year ended January 31, 2016 to the year ended January 31, 2021 revenues skyrocketed from $6.7 billion to over $21.2 billion. For fiscal 2022 the company is expected reach $26.3 billion in top-line revenue, another 24% gain.

The company has a gross profit margin near 75% and has been steadily focused on raising the operating margin. The EBITDA margin has remained steady at 15% over the past 12 months and the two prior fiscal years.

The EBITDA allows for a tremendous amount of cash flow to be generated. Over the previous 12 months Salesforce has pulled in over $6 billion in cash from operations. This amounts to over 28% of revenue. This cash flow has allowed for the company to invest in growth and make several high-profile accretive acquisitions.

First, in 2019, Salesforce acquired Tableau to improve its data analytics offerings. Next, in 2021, the company completed the acquisition of Slack to solidify its work-from-anywhere offerings. These, along with the organic growth, have allowed the company to claim a total addressable market that is expected to reach $248 billion by 2025.

Salesforce stock has gained 13.8% over the past 12 months. The company currently trades at a forward PS ratio of 10.2 and an EV/EBITDA margin of 36.4.

Wall Street’s Take

Wall Street analysts give Salesforce a Strong Buy consensus rating. Thirty-two analysts have Buy ratings, along with six who have Hold ratings.

The average Salesforce price target of $328.42 implies 12.8% upside from the current price.

Summary on Salesforce

Salesforce is the market leader in customer relationship management for the future. The company has benefited from the increase in work-from-home trends due to the pandemic, however Salesforce is not a “pandemic trade.”

Margins are increasing and cash flows are excellent. Management has made aggressive acquisitions which should power the company and the stock well into the future.

Disclosure: At the time of publication, Bradley Guichard had a position in securities mentioned in this article.

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