Salesforce CRM is one of three new Dow members, and the cloud software powerhouse saw its stock price soar over 25% after it blew away quarterly Wall Street estimates in late August. CRM shares did get hit by the recent tech-driven selloff. Still, the question remains: should investors consider buying Salesforce stock right now?

Quick Look Back…

Salesforce joined the Dow Jones Industrial Average last month, as part of a shake up after Apple’s AAPL 4-for-1 stock split. The cloud software firm is now part of a select group of giants from Microsoft MSFT to Disney DIS and could benefit from the added exposure.

More importantly, the firm’s second quarter results impressed investors and its improved outlooked helped showcase that its business is prepared to thrive in the digital age.

CRM’s Q2 FY21 revenue climbed 29%, while its adjusted earnings soared roughly 120% to crush our Zacks estimate. “As we look out over the next 12 to 24 months, we realize it’s important for us to make a strategic shift in investments today to better position our company for continued growth and customer success in this new, all-digital, work-from-anywhere environment,” President and CFO Mark Hawkins said on the company’s Q2 earnings call.

What’s Next…

Salesforce is one of the world’s largest enterprise-application-software companies. The firm’s cloud-based customer relationship management services offer clients a range of tools and applications to help run everything from sales and e-commerce to marketing and analytics.

CRM’s subscription-based cloud software offerings were already growing widely popular with businesses of all shapes and sizes for years. And the work-remote push solidified its business model. On top of that, its Tableau acquisition, which it completed in August 2019, is set to boost its data analytics segment.

That said, the company’s sales growth is expected to slow. Our current Zacks estimates call for Salesforce’s fiscal 2021 (current year) revenue to climb 21.5% to reach $20.77 billion, with FY22 projected to come in another 17.4% higher to $24.39 billion.

Salesforce’s FY21 growth estimate would mark its slowest top-line growth since 2010, with FY22’s projection representing its most subdued revenue growth as a public firm. For reference, CRM’s FY20 sales jumped 29%, with FY19 up 26%, and FY18 up 25%.

Meanwhile, Salesforce’s adjusted FY21 earnings are expected to jump 25%. And CRM’s longer-term earnings revisions have surged since its report. This positivity helps Salesforce stock grab a Zacks Rank #1 (Strong Buy) right now, alongside its “B” grade for Momentum in our Style Scores system.

The nearby chart shows that Salesforce stock is up 160% in the last three years, to help it top the tech sector’s 60% climb. CRM closed regular trading Monday at $246.64 a share, down around 13% off its recent highs. This might set up a more attractive buying opportunity for investors high on Salesforce.

It is also worth pointing out that Salesforce’s valuation showcases that it’s firmly thought of as a growth stock, as investors have been willing to pay a premium for it for years. The stock currently trades at 9.6X forward sales, against the tech sector’s 4.2X average, while Amazon AMZN trades at 3.8X. Yet this puts it in line with Microsoft.  

Bottom Line

Salesforce clearly appears worth considering as it is likely to thrive in a crowded and vital SaaS space for years. And its shares have started to bounce back already. That said, more near-term tech selling could on the horizon and the upcoming election could create more volatility, even in our current interest rate environment.

Therefore, investors with a shorter-term horizon might want to think twice before chasing CRM gains right now. Meanwhile, those with long-term aspirations could consider adding the newly minted Dow component that is a star within a growth-focused industry.

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