On bad days, a momentum stock like Salesforce (NYSE:CRM) usually leads lower first. Instead, CRM stock was the one still trying to rally on a bad market day.
Why so much faith in CRM?
This is the company that made the cloud a cool place to be, and it still reigns supreme there. Back then it competed against giants like Microsoft (NASDAQ:MSFT) and won. This was no small feat so we have proof that management is competent enough to navigate these headline threats.
And while Salesforce is the company that first put the possibilities of the cloud in the spotlight, Amazon (NASDAQ:AMZN) is the company that made it easy for all companies to join in on the fun. That migration trend will continue for the next few years, which means the demand for CRM products and services will also continue to grow.
Moreover, the reasons that are scaring investors out of stocks here have nothing to do with CRM’s profit and loss statement. Salesforce is not in the line of fire of the economic trade war between the U.S. and China. Sure, it could suffer indirectly from other companies contracting, but the services that CRM provides will survive the early cuts in spending.
During hard times, businesses don’t eliminate what makes them efficient.
Fundamentally, Salesforce stock is not cheap as it sells at a price-to-earnings ratio of 103. This is almost four times more expensive than MSFT or Apple (NASDAQ:AAPL). But for now, and for as long as it grows this fast, this is not an issue.
Hyper-growth companies like CRM need to spend a lot to feed the growth. So, for now, Wall Street still gives it a pass on profitability.
Technically, CRM stock is tight and a momentum stock like this doesn’t stay tight for long. That means there is a move coming … but in which direction?
How to Approach CRM Stock Today
Since support for CRM just below its current price has held all year, I assume that the bears need new reasons to sell it lower. So the upside scenario is more likely to happen than a debacle.
But as with all assumptions, we also have to consider the opposite scenario. So if this market-wide malaise lingers, then Salesforce.com stock is vulnerable to $144 per share. That zone was the 2019 breakout level and it should provide support on the way down.
And since we are still in intense headline mode, I wouldn’t suggest taking a full position all at once. Instead, I suggest that you do it in tranches. This leaves room for error and you can add more if the price action this week is favorable for such a move.