What’s Happening With Salesforce Stock?

Salesforce stock (NYSE: CRM) is up over 10% in after-hours trading on December 3, 2024, after the company reported an upbeat quarter and outlook. It reported sales of $9.4 billion and adjusted earnings of $2.41 per share (including a loss of $0.18 per share from strategic investments), compared to the consensus estimates of $9.3 billion and $2.44, respectively. Let’s dive deeper into the company’s quarterly performance and the impact on its stock price. 

How Did Salesforce Fare In Q3?

Salesforce’s revenue of $9.4 billion in Q3 (fiscal ends in January) reflected an 8% y-o-y growth, driven by a 9% rise in its subscription and support sales to $8.9 billion. Notably, Salesforce’s current remaining performance obligations – which refers to all future revenue under contracts yet to be recognized – stood at $26.4 billion, up a solid 30% y-o-y, and it was slightly above the street estimates. The company is benefiting from its AI system – Agentforce. The company continues to introduce AI capabilities across its offerings, which is resulting in increased adoption.

Not only did Salesforce see its revenue rise, but its adjusted operating margin increased by 190 bps y-o-y to 33.1% in Q3. Higher revenues and margin expansion resulted in the bottom line of $2.41, reflecting a 14% y-o-y growth. Looking forward, the company expects its revenue to rise between 7-9% and earnings to be in the range of $2.57-2.62 on a per-share and adjusted basis in Q4.

What Does This Mean For CRM Stock?

CRM stock is up 40% this year, outperforming the broader markets, with the S&P 500 index up 26%. However, the changes in CRM stock over the recent years have been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 14% in 2021, -48% in 2022, and 98% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and changes in the White House, could CRM face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think there will be little room left for growth after this post-earnings 10% jump. We estimate Salesforce’s valuation to be $390 per share, based on 33x expected earnings of $11.77 per share in fiscal 2026, close to the stock’s average P/E ratio of over 32x over the last two years.

Overall, Salesforce posted a good quarter and better-than-expected revenue guidance for the next quarter. With continued AI expansion and a focus on margin improvement, the company is likely to see robust earnings growth in the coming years. Moreover, the company is also looking to enhance shareholder returns. It spent nearly $8 billion on share repurchases so far this year.

While CRM may have little room for growth, it is helpful to see how Salesforce’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 12/4/2024
[2] Cumulative total returns since the end of 2016

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