Why Financial Pros Are Watching Salesforce (CRM)

Salesforce (CRM) hasn’t missed analyst sales expectations since 2006.

So, needless to say, markets didn’t take it well when revenues fell short in the latest quarterly report.

Management confirmed that the breakneck double-digit growth that defined the last 20 years was ending, forecasting an 8% to 9% sales increase for this fiscal year.

Naturally, investors punished the stock, sending shares down almost 20%.

But with shares trading at multi-month lows, we wondered whether it was an opportunity to scoop up the stock at a discount.

Here’s what we found out.

Salesforce’s Business

Salesforce is the gold standard when it comes to customer relationship management software (CRM). Hence its ticker.

It blends advanced technology, including AI, with comprehensive cloud services to drive digital transformations across various industries.

The company’s product suite includes innovative platforms for sales, customer service, and marketing, all designed to help businesses connect with their customers like never before.

Salesforce segments its business into the following areas:

• Subscription & Support (94% of total revenues) – Offers core CRM services along with diverse cloud solutions for sales, service, and commerce.
• Professional Services (6% of total revenues) – Focused on customer success, this segment delivers expert consulting, customized implementation, and extensive training.

Salesforce also faces challenges with its AI-driven initiatives like Data Cloud and Einstein Copilot.

Initially touted as growth catalysts, these tools have yet to significantly impact Salesforce’s revenue amid slow enterprise AI adoption. 

The company’s Q1 performance missed revenue estimates and projected a weaker Q2, reflecting difficulties in AI market penetration. 

Source: Salesforce Q1 2025 Earnings Presentation

CEO Marc Benioff champions Data Cloud’s potential to leverage customer data for AI applications, yet tangible growth remains elusive as enterprises cautiously approach AI integration.

Financials

Source: Stock Analysis

Salesforce saw mid to high 20% sales growth every year until 2022.

That’s when things started to slide.

Yet, that’s also when profit margins began to expand rapidly.

Even free cash flow margin at 31.8% is 50% higher than it was in 2022.

That’s helped the company buy back $7.7 billion worth of stock annually, or a 3.3% yield.

With very little debt, Salesforce is free to spend its cash as it needs for growth.

Valuation

Source: Seeking Alpha

The latest pullback has brought CRM a reasonable valuation on a non-GAAP P/E basis. Its price to cash flow ratio is also almost half that of its peers.

Even its price to sales ratio is substantially lower. 

But CRM isn’t the growth engine it once was.

Growth

Source: Seeking Alpha

From CrowdStrike (CRWD) to Shopify (SHOP), most SaaS providers have seen substantial revenue growth in the past 3-5 years. Salesforce was among them until recently.

Now, it has forecasted sales to rise by less than 10% for the year. Only Intuit (INTU) comes close to being that low.

Profitability

Source: Seeking Alpha

What Salesforce lacks in growth, it makes up in profitability in spades.

Only Intuit can match the types of profit margins hit by Salesforce.

However, all of them, except Shopify, throw up solid free cash flow margins.

Our Opinion 6/10

A lot of people are bullish on Salesforce in the long term.

We think they’ll use their cash flow to fix any problems. But we question whether it can see sales growth over 15% to 20% 

Until investors digest these facts, we don’t see the stock turning around and heading lower.

We still like the stock but would sit on the sidelines for now.

• Why Financial Pros Are Interested in Dell (DELL)
• Adding Color to the Investment Spectrum
• Is Now the Time to Buy AT&T (T)?
• Should You Hold Beyond Meat (BYND)?