As one of the many tech plays that “crushed it” in 2020, can Salesforce (CRM), the customer relationship software giant, continue to deliver in 2021? So far, it’s not looking that way. The stock saw a nice rally from around $220 per share to nearly $250 per share during February’s runaway rally, but it lost most of these recent gains during the tech stock correction in late February.
CRM has fallen back at around $231 per share and based on the cooling interest in “pandemic plays” along with valuation concerns, it’s hard to foresee another break-out in the near-term.
This may present an opportunity to investors looking for a “buy and hold” play. Shares could hold steady in the short-term, but for those with a longer time horizon, current price levels may offer an opportune entry point.
With its legacy business continuing to thrive and the potential for its recent acquisitions to pay off, shares may have considerable room to run once it catches up to its current valuation.
Big Tech Plays Like CRM Are Yesterday’s News
Underlying trends point to continued growth for Salesforce, with the customer relationship management industry set to grow by double-digits between now and 2027.
The company looks set to benefit tremendously from this growth with its already significant share of the market likely to expand even further in the coming years.
Based on current projections, revenue growth of 21.1% and 18.8% is expected for 2022 and 2023, respectively. This clearly bodes well for Salesforce as a company, yet it may not immediately translate into continued strong near-term returns for the stock.
As investors continue to take profits from their big tech “pandemic play” investments, and switch to post-Covid “reopening plays”, it’s going to be difficult for stocks like CRM to appreciate in the short-term.
But while the current environment may mean choppy near-term price action, those with a longer time horizon may still find this stock an appealing proposition.
The Silver Lining For Long-Term Investors
As with many names in this space, CRM stock got ahead of itself in 2020. While the massive boost in demand justified a move upward, one could argue that the approximate 53% gain over the past 12 months is a bit overdone.
But this may only affect performance in the near-term. At current prices, the stock trades for around 67x its projected FY22 (ending January 2022) earnings of $3.44 per share and at approximately 56x projected earnings of $4.16 for FY23.
This is assuming that Salesforce only hits its median sell-side estimates. If the company achieves its top-line projections, these stronger-than-projected results could fuel another move upward.
This could happen if the company’s growth exceeds expectations, or if its recent acquisitions, like Slack (WORK), pay off sooner than currently anticipated. With more than one way to beat expectations, the stock’s currently rich valuation and tepid near-term prospects aren’t necessarily a dealbreaker.
What Analysts Are Saying About CRM Stock
According to TipRanks, CRM comes in as a Strong Buy based on 17 Buy and 6 Hold recommendations. The average analyst price target of $273.91 implies approximately 19% upside potential from current levels over the next 12 months. Analyst price targets range from a low of $225 per share to a high of $320 per share. (See Salesforce stock analysis on TipRanks)
Bottom Line: Patience Could Pay Off With Salesforce Stock
Between its current stretched valuation and the cooling interest in big tech plays, further sideways price action is a possibility in the near-term. While that might be bad news for those looking for quick gains, investors with a longer time horizon may see current prices as a solid opportunity to enter a long position.
While the underlying prospects for Salesforce remain strong, the added potential of its recent M&A deals could pay off in a big way for investors with patience who are looking to capitalize on CRM following the recent weakness in the share price.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
