Salesforce (NYSE:CRM) is rallying this morning but it has not all come easy this year. In August when markets were setting highs and Amazon (NASDAQ:AMZN) hit $2000 per share, Salesforce had a few tough days. Those tough days turned out to be trading opportunities. Today, the opportunity presents itself once again to go long CRM stock here but for an investment not so much of a short-term trade.
This is a trend-setting company. I consider it cloud company royalty. They were the originals that kick-started the move to liberate data from the desktop boxes.
Since then, the move to the cloud has been a stampede. All companies who are not yet using it are scampering to get to it as quickly as possible. This is a sustainable trend for decades and it’s not going to reverse itself.
Salesforce was a pioneer and one that went toe-to-toe with Microsoft (NASDAQ:MSFT) and won. Management proved itself worthy of shareholder trust, as they will continue to execute successfully.
Salesforce stock’s 12-month performance also stands as a testament to the quality of the company. While Wall Street is quaking over tariff wars and rate hikes, CRM is up 31% and the S&P 500 is struggling to stay north of zero.
The experts agree as most of them have it as a buy or “strong” buy. Yet, CRM’s stock price is still trading below their average price target. Analysts expect a lot more upside from here.
The October market-wide correction brought CRM stock down 25%. It has since recovered half of it as it battles for important pivot points.
Technically this is a momentum stock, so it almost never gives investors clear entry points especially not while so many headlines are dragging sentiment down and casting doubt over the whole macro-economy.
Businesses are still strong, delivering great earnings reports. What is causing the drops on earnings events are the modest forward guides. This is because of the macro uncertainties, not to an internal fault of their own. Cooler heads will prevail.
Why? Because cautious management teams are a good thing. Otherwise, we end up with another dot-com bubble. This time we have the opposite situation. Great fundamentals and real income streams tempered by overly cautious executives.
Bottom Line on CRM Stock
CRM stock critics have always had issue with Salesforce’s valuation but they are wrong. Sure, on the face of it, it’s expensive with a three-digit price-earnings ratio.
But this is a company that grows at record pace. As long as it continues this I don’t expect it to do it on a budget. That is what growth companies do. They spend a lot to grow fast. At least CRM does it without bleeding cash.
Left alone without tariff, Brexit or Huawei CFO arrest headlines, CRM will get the job done. Nevertheless, the globe leaders will eventually come to their senses. All parties have too much to lose. They will come to terms soon enough and let the market forces take their natural course. Winning stocks will then continue to do what they do best, which is to deliver great returns.
The bottom line is that Salesforce is a great company and, in the long run, CRM stock will march higher. So far, it has rewarded its holders and every dip has been a buying opportunity. Timing will never be perfect, so waiting for that means to always miss the trade.
Homework says that it’s a buy, so it should be part of a balanced portfolio. It’s a good idea to start with a partial position. This would leave room to average down should price move the wrong way at first.
Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.