Software stock Salesforce, Inc. (CRM) has gained 14.4% over the past month. Moreover, it has gained 8.5% over the past three months to close the last trading session at $171.08.
The company registered solid gains after activist investor Elliott Management Corp (Elliott) made a multi-billion-dollar investment in CRM. Jesse Cohn, the managing partner at Elliott, believes CRM is "one of the preeminent software companies in the world."
In addition, activist investor Jeff Ubben's Inclusive Capital Partners also took a stake in the software company, CNBC reported.
Furthermore, amid rapid digitalization across industries, the software industry is witnessing solid demand. The global business software and services market is expected to expand at a compound annual growth rate (CAGR) of 11.9% from 2023 to 2030. Also, investors' interest in software stocks is evident from SPDR S&P Software & Services ETF's (XSW) 8.3% returns over the past three months.
Here is what could shape CRM's performance in the near term:
Solid Top Line Growth
CRM's subscription and support revenue came in at $7.23 billion for the third quarter that ended October 31, 2022, up 13.4% year-over-year. Its professional services and other revenue came in at $604 million, up 24.8% year-over-year. Also, its total revenues increased 14.2% year-over-year to $7.84 billion.
In addition, its gross profit came in at $5.75 billion, reflecting an increase of 14.5% year-over-year. Its income from operations came in at $460 million, up 1,110.5% year-over-year.
Favorable Analyst Expectations
Analysts expect CRM's revenue to increase 16.9% and 10.4% year-over-year to $30.97 billion and $34.19 billion in 2023 and 2024, respectively. Its EPS is expected to increase 3.1% and 17.6% year-over-year to $4.93 and $5.80 in 2023 and 2024, respectively.
Moreover, its EPS is expected to grow by 18.3% per annum for the next five years. In addition, it surpassed EPS estimates in all four trailing quarters.
Robust Profitability
CRM's trailing-12-month gross profit margin of 72.69% is 48.6% higher than the industry average of 48.92%, while its trailing-12-month levered FCF margin of 30.62% is 345.9% higher than the industry average of 6.87%.
POWR Ratings Reflect Promising Outlook
CRM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
CRM has an A grade for Growth, consistent with its steady growth in the last reported quarter. It has a B grade for Sentiment, in sync with optimistic analyst expectations.
In the 137-stock Software – Application industry, CRM is ranked #33.
Click here for the additional POWR Ratings for CRM (Value, Momentum, Stability, and Quality).
View all the top stocks in the Software – Application industry here.
Bottom Line
CRM possesses sound fundamentals. Moreover, Wall Street analysts expect the stock to hit $188.68 in the near term, indicating a potential upside of 10.3%. And given its positive growth outlook amid solid prospects of the software industry, I think CRM is an ideal buy now.
How Does Salesforce, Inc. (CRM) Stack Up Against its Peers?
While CRM has an overall POWR Rating of B, one might consider looking at its industry peers, Progress Software Corporation (PRGS), Xperi Inc. (XPER), and Open Text Corporation (OTEX), which have an overall A (Strong Buy) rating.
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CRM shares were unchanged in premarket trading Tuesday. Year-to-date, CRM has gained 29.03%, versus a 7.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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