CRM - Salesforce: Earnings Overreaction Creates A Buying Opportunity

2024-06-07 08:30:00 ET

Summary

• Salesforce's Q1 FY2025 report showed total revenues of $9.13B, missing estimates and causing a 20% drop in the stock.
• The company's AI efforts are expected to bear fruit in the coming years, and it continues to generate strong cash flow.
• Despite short-term challenges, Salesforce's long-term business fundamentals remain intact, making the current dip a buying opportunity.

Introduction

In April 2024, I downgraded Salesforce, Inc. ( CRM ) from "Buy" to "Hold" at ~$300 per share due to significant deterioration in its long-term risk/reward after a rapid run-up in CRM stock:

From a business standpoint, Salesforce remains a high-conviction play for me, despite management's projection of further moderation in top-line growth to high single digits. We own Salesforce and plan to continue to do so for the foreseeable future.

That said, given the significant deterioration in Salesforce's 5-year expected CAGR return from 18% to 11%, I am downgrading CRM stock to a "Hold".

Source: Salesforce: Too Far, Too Fast (Rating Downgrade)

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