Cloud software behemoth Salesforce (CRM) has been looking to regain its footing in recent weeks. While Salesforce is poised to push further into profitability, with management’s increased emphasis on margin enhancement, the stock has still been punished severely, primarily for its “high” multiple and the nature of its business.
Cloud stocks have been downright scary amid the recent tech sell-off. Salesforce is just one of the names that investors have fallen out of love with over the past year.
The company has blown away results quarter after quarter, but the firm’s M&A approach seems to act as an overhang on the stock. Just when the stock is about to lift off on the back of a big quarterly beat, an acquisition is announced that sends Salesforce stock nosediving.
The value of the acquisition of Slack has been questioned by many. With expensive pandemic beneficiaries now miles off their high, it seems easy to conclude that Salesforce did pay a hefty price of admission.
Despite the dread surrounding Slack and more deals to come, I remain bullish on CRM stock.
Salesforce Stock: M&A Moves Have Weighed Heavily
Marc Benioff is an enthusiastic leader. Whether he got overexcited when Salesforce bought Slack or not remains to be seen.
Investors may have thought he neglected value when forking up $27.7 billion. Still, it’s too soon to reach such a conclusion. Could Salesforce have paid far less if it made the acquisition announcement today than in the back half of 2020?
Sure, but there was always a risk that another enterprise software firm could have nabbed the workplace communications developer, putting Salesforce in a tougher spot to compete against Microsoft (MSFT).
Now that speculative tech stocks have fallen back to Earth, a big question on investors’ minds is if Salesforce will continue its buying spree.
Getting More Selective?
Salesforce has scooped up some very intriguing technologies over the years, with data-visualization firm Tableau Software, Mulesoft, and Slack — three innovative platforms that are arguably best-in-breed. The deals were sizeable and not exactly cheap.
Over the long haul, Salesforce is likely to continue its strategy of acquiring its way to become an even greater force to be reckoned with in the enterprise software space. Even if the timing of prior M&A moves has been less than perfect, Salesforce looks like a freight train that will be tough to stop over the long haul.
After a rocky start to 2022, now seems like a great time to take advantage of the many bargains in the tech sector. With some debt weighing down the balance sheet and more time needed to integrate, enhance and polish the Slack and Tableau acquisitions, it seems unlikely that Salesforce will make another huge splash anytime soon.
Benioff and his co-CEO Bret Taylor don’t have plans to wheel and deal anytime soon, at least not over the “near-term.” Should the tech sell-off worsen, it’s hard to imagine a scenario where Salesforce leaves the “tech wreck” empty-handed.
Wall Street’s Take
According to TipRanks’ rating consensus, CRM stock comes in as a Strong Buy. Out of 28 analyst ratings, there are 24 Buy recommendations and four Hold recommendations.
The average Salesforce price target is $303.19, implying 38% upside potential. Analyst price targets range from a low of $225 per share to a high of $375 per share.
Bottom Line on CRM Stock
Salesforce will be busy bringing out the best in the many deals it’s made in recent years. There’s still a lot of work to do with its recent trio of big deals. So, another Slack-sized deal seems out of the question at this juncture.
Still, the company could have room to pull the trigger on a smaller deal as valuations across the broader basket of SaaS companies implode.
In any case, I suspect any such deal will be met with applause, not punishment, as the company focuses on getting growth and margins on the right track.
Even if no small deals are announced this year, the ruling out of any Slack-like blockbuster deals on the horizon seems like a positive in my books. The assurance of no more sizeable deals could remove a significant overhang on CRM stock that’s kept many investors on the sidelines.
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