Salesforce is frequently mentioned as a cheap or undervalued stock on account of its depressed pricing multiples. During my analysis I outline why this is not the case, and why the stock is trading at around a two-year premium.
Despite this, I view Salesforce entering the stage of moving to increased profitability, and thereby increasing the value for investors. While I see limitations in growth, including M&A driven-growth, I view that the main value factor for the company will be the increase in GAAP operating margins in the future, which I mark as the KPI for investors following the company.
Competitors are a main risk factor for the company as the tech becomes easier to replicate. However, the main moat for Salesforce is their established enterprise-level customer base, which is sticky on account of the difficulty in replacing the large system that is Salesforce. The company has higher up-front costs for customer acquisition but can minimize the maintenance costs for retention, which will be the key driver that allows for increased margins over time.
My valuation results in a $204/share rising to $230/share in 1 year, driven by 13% annual free cash flow CAGR for the forecasted 10-year period.
Full analysis at:
https://seekingalpha.com/article/4793000?gt=10f1a922176f24f5
Salesforce was part of my CRM/Project management SaaS theme, you can view the peer analyses at:
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