It hasn't been a great afternoon session for Salesforce investors, who have watched their shares sink by -2.0% to a price of $209.33. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Salesforce, Inc. provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Salesforce has a trailing 12 month P/E ratio of 550.9 and a P/B ratio of 3.57.
Salesforce's PEG ratio is 1.36, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Growing Revenues With Increasing Reinvestment in the Business:
| 2020-01-31 | 2021-01-31 | 2022-01-31 | 2023-01-31 | |
|---|---|---|---|---|
| Revenue (MM) | $17,098 | $21,252 | $26,492 | $31,352 |
| Gross Margins | 75.2% | 74.4% | 73.5% | 73.3% |
| Operating Margins | 2.7% | 2.1% | 2.1% | 5.9% |
| Net Margins | 0.74% | 19.16% | 5.45% | 0.66% |
| Net Income (MM) | $126 | $4,072 | $1,444 | $208 |
| Depreciation & Amort. (MM) | -$2,135 | -$2,846 | -$3,298 | -$3,786 |
| Earnings Per Share | $0.15 | $4.38 | $1.48 | $0.38 |
| EPS Growth | n/a | 2820.0% | -66.21% | -74.32% |
| Diluted Shares (MM) | 850 | 930 | 974 | 974 |
| Free Cash Flow (MM) | $3,688 | $4,091 | $5,283 | $6,313 |
| Capital Expenditures (MM) | -$643 | -$710 | -$717 | -$798 |
| Net Current Assets (MM) | -$5,278 | -$2,919 | -$14,228 | -$14,095 |
| Current Ratio | 1.08 | 1.23 | 1.05 | 1.02 |
| Long Term Debt (MM) | $2,673 | $2,673 | $10,592 | $9,419 |
| Net Debt / EBITDA | -0.31 | -2.44 | 2.21 | 0.62 |
Salesforce has growing revenues and increasing reinvestment in the business and exceptional EPS growth. Additionally, the company's financial statements display a pattern of improving cash flows and low leverage. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a positive growth rate.
