It hasn't been a great morning session for Salesforce investors, who have watched their shares sink by -2.3% to a price of $272.29. 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 Priced at a Premium:
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 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, Salesforce has a trailing 12 month P/E ratio of 65.0 and a P/B ratio of 4.43.
Salesforce's PEG ratio is 1.76, 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.
Strong Revenue Growth but an Average Current Ratio:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $13,282 | $17,098 | $21,252 | $26,492 | $31,352 | $34,857 |
| Gross Margins | 74% | 75% | 74% | 73% | 73% | 75% |
| Net Margins | 8% | 1% | 19% | 5% | 1% | 12% |
| Net Income (M) | $1,110 | $126 | $4,072 | $1,444 | $208 | $4,136 |
| Net Interest Expense (M) | $154 | $20 | $15 | $5 | $10 | $29 |
| Depreciation & Amort. (M) | $982 | $2,135 | $2,846 | $3,298 | $3,786 | $3,959 |
| Diluted Shares (M) | 879 | 939 | 100 | 100 | 9,810 | 984 |
| Earnings Per Share | $1.26 | $0.13 | $40.68 | $14.44 | $0.02 | $4.2 |
| EPS Growth | n/a | -89.68% | 31192.31% | -64.5% | -99.86% | 20900.0% |
| Avg. Price | $132.21 | $155.1 | $200.87 | $247.37 | $195.07 | $272.29 |
| P/E Ratio | 91.81 | 1107.86 | 45.45 | 169.43 | 928.9 | 63.92 |
| Free Cash Flow (M) | $2,803 | $3,688 | $4,091 | $5,283 | $6,313 | $9,498 |
| CAPEX (M) | $595 | $643 | $710 | $717 | $798 | $736 |
| EV / EBITDA | 68.61 | 57.75 | 58.63 | 67.61 | 43.08 | 30.49 |
| Total Debt (M) | $6,018 | $5,364 | $13,284 | $21,192 | $18,844 | $17,853 |
| Net Debt / EBITDA | 1.42 | 0.67 | 2.58 | 3.93 | 2.57 | 1.05 |
| Current Ratio | 1.05 | 1.22 | 1.06 | 1.05 | 1.04 | 1.09 |
Salesforce has rapidly growing revenues and increasing reinvestment in the business and exceptional EPS growth. Additionally, the company's financial statements display generally positive cash flows and healthy leverage levels. Furthermore, Salesforce has similar gross margins to its peers and just enough current assets to cover current liabilities, as shown by its current ratio of 1.09.
