What’s Next For Salesforce Stock?

Salesforce (NYSE:CRM) recently released its Q4 fiscal 2025 results (fiscal year ending in January), reporting sales of $9.99 billion and earnings per share of $2.78. While earnings surpassed consensus estimates of $2.61 per share, revenue fell short of the projected $10.04 billion. The revenue shortfall can be attributed to slower-than-expected adoption of its AI-powered, Agentforce platform. Furthermore, the company’s forward-looking guidance did not meet market expectations, resulting in a decline in the stock price following the earnings announcement.

CRM stock, with 17% returns since the beginning of 2024, has underperformed the S&P 500 index, up 28%. But, if you want an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Image by Innova Labs from Pixabay

How Did Salesforce Fare In Q4?

Salesforce’s revenue of $9.9 billion in Q4 represents a 7.6% year-over-year growth. The company’s current remaining performance obligations, which represent future revenue under contracts yet to be recognized, reached $30.2 billion, a 9% year-over-year increase. Salesforce is seeing benefits from its AI system, Agentforce, and is continuously integrating AI capabilities across its offerings, leading to increased adoption. However, this adoption is growing at a slower pace than anticipated, as enterprises re-evaluate their spending in response to elevated interest rates and uncertain macroeconomic conditions.

Salesforce not only achieved revenue growth in Q4, but also saw its adjusted operating margin increase by 170 basis points year-over-year to 33.1%. This combination of higher revenues and margin expansion resulted in adjusted earnings per share of $2.78, representing a 21% year-over-year increase. Looking ahead to Q1, the company projects revenue between $9.71 billion and $9.76 billion, and adjusted earnings per share in the range of $2.53 to $2.55. These figures fall short of consensus estimates of $9.9 billion for revenue and $2.61 for earnings per share.

What Does This Mean For CRM Stock?

CRM stock is expected to trend lower following the downbeat performance and outlook. Even if we look at a slightly longer period, the changes in CRM stock 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, 98% in 2023, and 28% in 2024.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year 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 ongoing trade wars, 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? While we will soon update our model for Salesforce to reflect the latest results, there seems to be some room for growth from here.

At its current pre-market price near $295, CRM stock is trading at approximately 28x trailing earnings of $10.20 per share, below its two-year average P/E ratio of about 32x. While this valuation compression can be attributed to a conservative outlook and slow Agentforce adoption rates, we believe these concerns are already priced into the stock. Consequently, we see potential upside from the $295 level. Investors should also consider the company’s improving profitability, which increased by 250 basis points in 2024, with management guiding for an additional 100 basis point improvement in 2025.

While CRM may have some 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 2/27/2025
[2] Cumulative total returns since the end of 2016

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