With a day's loss of -1.77%, a 3-month loss of -1.73%, and an Earnings Per Share (EPS) of 0.38, Salesforce Inc (CRM, Financial) appears to be significantly undervalued. This article provides a detailed analysis of Salesforce's valuation, aiming to answer the question: Is the stock truly undervalued? Keep reading to uncover the intrinsic value of Salesforce (CRM) based on our comprehensive analysis.
Company Introduction
Salesforce Inc provides enterprise cloud computing solutions, offering customer relationship management technology that connects companies and customers. Its versatile Customer 360 platform integrates customer data across systems, apps, and devices to facilitate sales, service, marketing, and commerce. The company's product portfolio includes Service Cloud for customer support, Marketing Cloud for digital marketing campaigns, Commerce Cloud as an e-commerce engine, the Salesforce Platform for enterprise application development, and MuleSoft for data integration.
With the current stock price standing at $207.97, it's essential to compare this with the GF Value, an estimation of fair value, to assess the stock's potential. Here's the income breakdown of Salesforce:
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, Salesforce (CRM, Financial) is estimated to be significantly undervalued. The stock's fair value is calculated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $207.97 per share, Salesforce stock is estimated to be significantly undervalued.
Because Salesforce is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Salesforce's Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. Salesforce's cash-to-debt ratio of 1.07 is lower than 65.35% of 2724 companies in the Software industry, indicating fair financial strength. Here's a look at Salesforce's debt and cash over the past years:
Profitability and Growth
Consistent profitability over the long term reduces the risk for investors. Salesforce has been profitable 7 over the past 10 years. With a revenue of $32.20 billion and an Earnings Per Share (EPS) of $0.38 in the past twelve months, its operating margin of 9.2% ranks better than 69.36% of 2722 companies in the Software industry, indicating fair profitability.
Growth is a critical factor in a company's valuation. Salesforce's 3-year average revenue growth rate is better than 67.78% of 2390 companies in the Software industry. Its 3-year average EBITDA growth rate of 22.8% ranks better than 70.61% of 1994 companies in the Software industry, indicating strong growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Over the past 12 months, Salesforce's ROIC was 1.26, while its WACC came in at 11.51.
The historical ROIC vs WACC comparison of Salesforce is shown below:
Conclusion
Overall, Salesforce (CRM, Financial) stock is estimated to be significantly undervalued. The company's financial condition is fair, its profitability is fair, and its growth ranks better than 70.61% of 1994 companies in the Software industry. To learn more about Salesforce stock, you can check out its 30-Year Financials here.
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