Salesforce Buy Alert: CRM Stock Is a Steal at Current Valuations
Salesforce (NYSE:CRM) stock had touched highs of $319 at the beginning of March. There has been a sharp correction of 20% from those highs and CRM stock currently trades at $254. In my view, the correction presents a golden opportunity to consider exposure to this value creator. This column discusses the reasons to be bullish on CRM stock with an investment horizon of three to five years.
Coming to valuations, CRM stock trades at a forward price-to-earnings (P/E) ratio of 25.7x. This is cheap considering the potential growth in the next few years. I therefore see limited downside from current levels while the upside potential is significant.
It’s worth mentioning at the onset that Salesforce believes that the company’s total addressable market will be worth $290 billion by 2026. A big market provides ample headroom for growth through this period. Let’s dig deeper into the fundamentals and discuss the reasons to be bullish on CRM stock.
Robust Cash Flow Will Support Growth Acceleration
Businesses are valued based on the cash flow potential. Last year, Salesforce reported revenue and operating cash flow of $34.9 billion and $10.2 billion respectively. For Q1 2025, the company reported operating cash flow of $6.2 billion.
Robust cash flows provide Salesforce with ample flexibility to pursue organic and acquisition-driven growth. At the same time, the company has been creating value through dividends and share repurchases.
It’s worth noting that Salesforce reported cash and equivalents of almost $18 billion as of Q1 2025. The company has a track record of growth through acquisitions. Considering the financial flexibility, I will not be surprised if Salesforce pursues acquisition(s) to boost revenue growth. Earlier this month, Salesforce signed an agreement to acquire PredictSpring, “a modern retail Point-of-Sale (POS) software vendor.” This will help Salesforce provide a “unified omnichannel platform spanning digital and physical channels.”
Another point to note is that Salesforce reported research and development expenses of $5.8 billion for the trailing twelve months. This underscores the company’s commitment to innovation that’s likely to be a key growth driver.
Attractive Growth in International Markets
It’s worth noting that in the last five quarters (Q1 2024 to Q1 2025), year-on-year revenue growth in the Americas has averaged 9.8%. For the same period, Europe, Middle East, and Africa (EMEA) growth has averaged 11.6%. Further, growth in Asia-Pacific for the period has averaged 19.8%.
From the above data, it’s clear that international markets are driving growth. This is in sync with Salesforce making incremental investments in these markets. As a technology leader in customer relationship management, Salesforce is well-positioned to gain market share in high-growth economies.
As an example, Salesforce and its ecosystem of customers and partners in India are “expected to create a net gain of 1.8 million new jobs and generate $88.6 billion in new revenues from 2022 to 2028.” This is just one example and underscores the impact Salesforce is likely to have through its AI-powered solutions. I would therefore not be disappointed by relatively muted year-on-year revenue growth.
Bottomline: CRM Stock Will Witness A Sharp Reversal
It’s not often that high-quality companies trade at attractive valuations or a possible valuation gap. I would therefore not think twice before considering exposure to CRM stock.
The addressable market is significant and Salesforce has been delivering healthy growth in international markets. With AI-powered solutions, the company is well-positioned to add significant value to customers.
It’s also worth noting that the company has high financial flexibility. There is a possibility of a big acquisition that supports long-term growth. With these potential catalysts, I am bullish on CRM stock trending higher from oversold levels.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
