Does the Latest Drop in Salesforce Stock Make It a Buy?

Salesforce has had a poor showing in the stock market this week

Shares in Salesforce (NYSE:CRM) dropped 2.38% on Thursday, with the customer relationship management software company at $150.81 to close the day. That puts CRM stock at a loss of nearly 6% on the week, thus far. Despite its poor showing this week and somewhat erratic performance in 2019, Salesforce stock is still up over 11% so far this year, and most analysts have it rated as a Strong Buy.

CRM Stock: Does the Latest Drop in Salesforce Make It a Buy?
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This week has been a tough one for many technology stocks, and Salesforce has not been immune to the outside forces that have hit the sector. 

The Federal Reserve cut interest rates by a quarter of a point on Wednesday, the first reduction in the key rate since 2008. But there was confusion over what the move meant in terms of long-term financial policy, and the results were a hit to the stock markets.

Then, just when it seemed as though the trade war between the U.S. and China was cooling, President Trump took to Twitter on Thursday. His tweet threatening to impose tariffs on $300 billion of Chinese products in September quickly hit stock markets. While a software company like Salesforce isn’t likely to see a meaningful direct effect from tariffs, it is exposed to consequences if a trade war damages the economy and slows spending. Companies that are looking to cut expenses may look at client relationship software as a non-critical expenditure.

As a result of the specter of new tariffs on Chinese goods being raised, the Nasdaq Composite was down 0.79% on Thursday, while CRM stock fared even worse at a 2.38% drop. In comparison, client management software competitor HubSpot (NYSE:HUBS) closed down 0.54% on Thursday.

Q2 Earnings Are Approaching

In the previous quarter, Salesforce reported a 24% year-over-year increase in revenue, a nearly 14% increase in net income and delivered earnings-per-share of 93 cents, handily beating expectations. In its guidance for Q2, Salesforce said it is expecting revenue of between $3.94 and $3.95 billion, and EPS in the range of 46 cents to 47 cents. That weak guidance helped set the stage for a volatile several months for CRM stock, and is undoubtedly coming into play as the Q2 earnings date approaches: after the market closes Aug. 22.

What the Analysts Are Saying About CRM Stock

Of the 30 analysts firms surveyed by Nasdaq, one has stock rated as a Hold; the other 29 have it as a Strong Buy. The consensus is strongly in favor of Salesforce having significant upside. Among 38 analysts polled by CNN Business, the median price target for CRM stock over the 12 months is $185, meaning there is potential for over 22% growth over the next year. That $185 target is far from a stretch, given that Salesforce stock topped the $190 mark in mid May.

With Salesforce announcing it will release its earnings report on Aug. 22, the recent slump represents a buying opportunity, especially if you’re in it for the long term. The question is whether it might drop further between now and then. After the company’s last earnings report in June, CRM stock saw several days of gains and briefly topped $161 several days later. However, in the week leading up to the report it slid nearly 7% bottoming out just over $145. There’s a possibility we could see a similar pattern this time around. 

Whether you gamble on a further drop prior to Aug. 22 or decide that there will be a recovery from this week’s slide, the consensus is that CRM stock is in buy territory.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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