Salesforce Stock (NYSE:CRM)
Salesforce stock dropped 2.4% as of 11 AM ET on Friday, and there’s just one explanation: Research by Wolfe.
What’s the Reason?
Despite being a staunch advocate of Salesforce (NYSE:CRM) for the previous decade, Wolfe Research downgraded the CRM stock from outperforming to market perform this morning. According to today’s report from StreetInsider, Salesforce CEO Marc Benioff believes the firm is entering a “new and challenging chapter” in its history due to a “substantial deceleration” in revenue “after a Covid pull-forward” in sales.
According to Wolfe, this year’s new bookings are down 53%, and revenue growth in 2023 may be in the single digits. Even with all that, management made things worse by spending billions of dollars on loss-making firms like Slack and Tableau. Despite three consecutive years of earnings far north of $2 billion, Salesforce has only made $306 million this year due to these purchase expenses depreciating over time.
To sum up, after a decade of expansion, Wolfe is concerned that CRM stock is no longer a great growth company for investors.
This evaluation is shared by some.
Unsurprisingly, S&P Global Market Intelligence found that most Wall Street analysts who track Salesforce still recommend buying the company. Despite Wolfe’s claims, Salesforce has increased its earnings by an average of 22% each year over the previous five years. Most analysts anticipate this growth to continue at a 20% pace over the next five years.
Buying Salesforce stock for 26 times free cash flow and expecting 20% annual growth isn’t the finest stock market deal. Still, it’s also reasonable for a firm of this quality. Wolfe Research, on the other hand, is just arguing that investors shouldn’t purchase Salesforce as recommended by the other analysts and should hold onto their shares for the time being.
To some extent, I agree with that evaluation. Wolfe, which has been correct about Salesforce for most of the last decade, is probably correct about it again today.
Featured Image: Megapixl @ Andreistanescu