ADBE - Salesforce: Sell-Off After Earnings Is Creating An Attractive Entry Point

2024-05-31 11:20:36 ET

Summary

• Salesforce's shares plummeted after missing revenue estimates, but the sell-off may be overdone, presenting an interesting entry point for investors.
• Risks include uncertainty about the bottom of the share price and the market's reaction to Salesforce's transition to a low-growth company.
• Salesforce's strong balance sheet, high cash flow, and market position make it an attractive long-term investment opportunity.

Salesforce ( CRM ) has been on my watchlist for some time, but I have gravitated to names in the Magnificent Seven, like most investors. Marc Benioff and the team at Salesforce have built one of the largest enterprise software companies that are embedded throughout corporate America. Salesforce reported Q1 earnings of $9.13 billion in revenue and non-GAAP EPS of $2.44, and shares plummeted as the revenue estimate missed the consensus estimates by $20 million. The street also didn't like that Salesforce guided for a revenue range of $9.2 - $9.25 billion in Q2, while they were looking for $9.34 billion of revenue. Salesforce maintained its full-year guidance of $37.7 billion to $38 billion in revenue, which places it in the high single-digit growth range, but that wasn't good enough as Salesforce lost roughly 1/5 ^th of its market cap in 24 hours. Salesforce just gave up all its gains over the past year and shares are lower after hours. While shares could continue lower, I think this is setting up an interesting entry point for investors who previously missed the Salesforce train. I think the sell-off was overdone as the emphasis seems to be shifting to growth at all costs rather than evaluating the actual underlying business. Salesforce is a mature company, and while it may not have the growth that Nvidia Corporation ( NVDA ) is producing, Salesforce is expected to generate EPS growth in the double digits YoY even if its revenue growth slows to the high single digits. As shares get closer to the $200 level, this will be an opportunity that looks better and better....

For further details see: