There Are Plenty of Profits Left for Investors in Salesforce Stock

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salesforce stock - There Are Plenty of Profits Left for Investors in Salesforce Stock

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Salesforce.Com (NASDAQ:CRM) is the kind of company Oracle should have been, but that’s not the only reason Salesforce stock is such a solid investment.

Salesforce was founded almost 20 years ago to sell database applications online by subscription. Its software as a service, was built on Oracle (NASDAQ:ORCL) database software. Founder Marc Benioff, worked at Oracle for 13 years and had been its youngest vice president.

You might call Salesforce a $100 billion company that never should have happened.

But it did, and San Francisco’s skyline is a winner from it, as the company is now lead tenant in its tallest building, the $1.1 billion 61 story Salesforce Tower. The question is, having become a monument, achieving a market cap of $112 billion, and proving the Software as a Service model, does Salesforce stock still have a profit left for you?

Since announcing yet-another earnings record August 29, fully diluted net income of $299 million, 39 cents per share, on revenue of $3.28 billion, the shares are down about $6 each, opening for trade Sept. 6 at $148.81.

The answer is yes.

Mature Growth and Salesforce Stock

Salesforce is a mature company, but it remains a growth company. Its guidance on full-year revenue, for the year ending next January, is $13.15 billion, give or take $125 million, compared with $10.48 billion for last year. That’s a growth rate of 25%.

Salesforce expects to earn about 98 cents per share on that revenue, compared with earnings of just 18 cents per share a year ago. Profits, in short, are just now taking off as the company approaches maturity. At its present pace it should have revenue of $23 billion in 2022.

That’s why 37 of the 43 analysts following Salesforce stock say you should buy it and no one has yet said sell. So far in 2018 Salesforce is up 42%, against an average NASDAQ gain of just 12%.

When stock mavens tell you to buy something “on weakness,” this is the kind of chart they’re looking at. Salesforce is down over the last week because the market is down. Its decline is almost identical to that of the NASDAQ itself.

People are lightening-up on tech stocks and taking profits because they’re very highly valued. Salesforce’s price to earnings ratio at its present price is a nosebleed-like 155.

What Comes Next?

Salesforce still doesn’t own its own data centers. Instead it has alliance agreements with Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL). So long as cloud capacity remains cheap, and the enormous capital budgets of these companies assure it will, Salesforce has a clear growth runway. It’s still cheaper to rent cloud than to buy.

Among SaaS stocks, Salesforce stock is a gold standard. It’s about as stable as a software company can possibly be, and now it’s big enough to buy any tools it may lack, as with its acquisition of Mulesoft early this year.

You can complain that the recent earnings were of “low quality” and that its peers are cheaper. You can fret about a “soft outlook”  or just say it’s conservative.

The Bottom Line on Salesforce Stock

A week from now, or a month from now, the price of Salesforce stock may be a few dollars per share lower than it is now.

Traders have switched, for the moment, from high-multiple tech stocks like Salesforce to low-multiple consumer discretionary stocks like Cracker Barrel Old Country Stores (NASDAQ:CBRL), which has a price to earnings multiple of 15 and even pays a dividend yielding 5%.

That’s called fashion. Traders can follow fashion. Investors should not. You should find good companies that grow over your investment time horizon, and if that horizon is five years or more, I much prefer Salesforce to any Cracker Barrel.

Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/salesforce-stock-plenty-profits/.

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