Salesforce (NYSE:CRM) is one of those stocks with a long-term stock chart investors drool over. Around 20 years ago, shares of CRM stock changed hands at a split-adjusted $3 per share. Today, those same shares are worth more than $200 apiece. That’s the kind of capital appreciation most long-term investors are after, and it’s why Salesforce remains a top position in the portfolios of so many growth investors today.
That said, given the current macro environment, certain investors wouldn’t be laughed out of the room to show some concern with CRM stock, and other highly-valued growth stocks. At a trailing price-to-earnings ratio of 126x, CRM stock isn’t cheap. This is a company that doesn’t pay a dividend, but is focused on continued growth within its core niche.
Looking at the company’s long-term trajectory, it’s clear that Salesforce’s strategy has worked over the years. With that said, let’s dive into some pros and cons of owning CRM stock here.
Salesforce Is Maturing Into a Slower-Growth Company
Typically, companies that trade at more than 6x sales and more than 100x earnings are among the highest-growing stocks out there. But now Salesforce is growing its revenues at a 11.4% clip, and it is profitable. This growth rate, and CRM’s gross and net margins of 13% and 4.8%, respectively, indicate that Salesforce is turning into more of a slower-growth, mature name in its field.
There’s nothing wrong with that. And considering Salesforce’s dominant position in its core customer-relationship management software business, this remains a name long-term growth investors may want to hold onto. If investors believe Salesforce can grow at, or slightly above, the average company in the market, there’s still a bull case that can be made to hold onto this stock.
Given the prevailing view that Salesforce provides essential software (rather than the “nice to haves” offered by other companies), this is a company that has a built-in moat, which likely drives much of this premium.
Until some disruptive force takes Salesforce off of its pedestal, it’s likely to remain a higher-priced and perhaps slower-growth company. But for many investors, that’s just fine.
Insider Selling Something to Watch
Now, there is the pesky reality that many of the company’s old guard are looking for greener pastures. Whether it’s the company’s CEO Marc Benioff or its executive team, insider selling is something I’ve pointed out in the past could be of concern to certain investors.
Indeed, there’s nothing wrong with insiders looking for an exit, and especially over an extended period of time. Benioff and others have been selling stock for years. There are myriad reasons why insiders sell stock, and many of them have nothing to do with the view of insiders on their own stock’s valuation.
In the case of Salesforce, however, rumors of an eventual changing of the guard have been hovering around this company for some time. If I’d have to guess, I think that’s what’s going on here.
That said, I’d put this in the “something to watch” category moving forward. There’s probably nothing to see here, and CRM stock has actually performed well relative to its peers of late.
That said, if there is some selling pressure moving forward, I know one aspect of this stock that will garner attention.
