Salesforce (NYSE:CRM) has become a fallen angel, with its stock plunging 56% from its all-time high. It has fallen 38% this year alone, making it the worst-performing stock in the Dow Jones Index. So why has this once-popular software stock been in retreat since December 2024?
Salesforce Stock Has Fallen Amid SaaSPocalypse Fears
CRM stock has fallen in the past few years amid concerns about its revenue and market share growth. Most recently, the retreat has been because of the ongoing SaaSPocalypse concerns.
SaaSPocalypse is the fear that artificial intelligence agents will ultimately disrupt and take market share from software companies. These AI tools are expected to become more powerful over time. Just this week, OpenAI confirmed that its AI tool had successfully hacked Hugging Face.
Salesforce is exposed to the AI industry because some of its products and services can be automated. To address some of these concerns, the company has continued to launch its own AI tools, with its Agentforce ARR crossing the $1 billion mark in the last quarter.
Further, analysts expect that Salesforce’s business will continue slowing in the coming years. Benzinga data shows that the company’s annual revenue will grow by 11% this year to $46 billion. It is also expected to slow to 9% to $50.5 billion next year.
Remember, this revenue growth includes its recent acquisitions. It acquired Informatica in a $8 billion deal last year. This year, it spent $3.6 billion to buy Fin, a company offering an autonomous customer service agent platform.
In its recent earnings, Salesforce said that its revenue jumped by 13% YoY to $11.1 billion, with Informatica contributing $444 million. As such, excluding Informatica, its annual growth was just 8.5%.
Analysts have also turned bearish on CRM stock. KeyCorp’s Jackson Ader slashed his rating from overweight to sector weight, while Royal Bank of Canada cut it to sector perform. Truist lowered the target from strong buy to hold. As a result, the consensus CRM stock target stands at $249 today. 12 months ago, this consensus was $348.
CRM Has Become a Bargain
The ongoing CRM stock retreat has transformed it into a bargain. Its forward price-to-earnings ratio has slumped to 11.5, much lower than the sector median of 23.3. This multiple is also lower than the five-year average of 31.
More valuation metrics show that it is a cheap company to buy. For example, its price-to-earnings-to-growth ratio has dropped to 0.72, which is also lower than the five-year average of 1.80.
The company’s rule-of-40 multiple also shows that it has become undervalued. Using its operating margin of 34%, it has a multiple of 47.8%. Also, using the free cash flow margin of 59.5%, its multiple is 72.5%.
As such, these numbers suggest that the stock may bounce back when investors start rotating from growth stocks to value.
Image: Shutterstock
Login to comment