A Growth Play That Could Generate Returns of 20% or More

Global businesses are still adapting to the changing paradigm of increased digital services and a work-from-home employee trend.

Staying up to date with the latest technological advances and keeping in touch with their customer base is essential to the long-term success of any business. And that means companies that provide other businesses with tools to facilitate customer communication are in high demand.

For one software company, the changing business environment and demand for more online services and solutions mean an opportunity for robust growth for years to come.

A Best-in-Class Business Application Company and Long-Term Growth Superstar

Salesforce.com (CRM) is a $226 billion business software applications company that focuses on customer relationship management. It provides services and application products directed at customer service, marketing automation, analytics, and application development.

The company reported an impressive first-quarter earnings beat of $1.21 per share compared to the analysts’ estimates of $0.89 per share. In addition, revenues were higher-than-expected at $5.96B versus $5.89B, signifying a 23% increase year-over-year.

The biggest catalyst working for Salesforce.com is the demand for increased digital services. In December, the company announced that it expected revenues of more than $50 billion by 2026, more than double that of its current $21 billion in annual revenues.

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The company’s $27.7 billion deal with Slack, a professional business communication platform, gives Salesforce a massive boost to its potential market base as well. Analysts are also taking notice of the company’s growth potential. Stifel resumed coverage on the stock earlier in July, giving it a “buy” recommendation and a $295 per share price target.

The Underlying Fundamentals

The stock trades roughly in line with the software industry’s average of approximately 44 times earnings. However, its phenomenal long-term projected EPS growth rate of 45% gives the stock a PEG ratio of just under 1. This ratio is a strong signal to investors that the stock is likely trading at undervalued prices right now.

As a bonus, the company has cash holdings of roughly $12 billion and current total liabilities of around $17.7 billion. This position gives the company plenty of maneuvering room for further investments or acquisitions.

The Overarching Technicals

Salesforce’s chart shows some signs of bullish activity, with the 20-day SMA trending well above both the 50-day SMA and 200-day SMA.

While the stock has been trading somewhat sideways over the past week, a clear “hammer” pattern appeared on Friday, which could signal increasing bullish movement. The muted RSI of 48 means that the stock is neither overbought nor oversold.

Investors will want to keep an eye on any significant changes over the next week.

The Bottom Line

Based on Salesforce’s full-year EPS estimates, this stock should be fairly valued at around $300 per share. A move to this price would represent a gain of nearly 24% from its current trading range.

Investors looking for a long-term growth play will want to consider adding this winning stock to their portfolio.

The above analysis of Salesforce.com (CRM) was provided by financial writer Daniel Cross.


Complete Technical Outlook for CRM

What’s the long-term outlook for Salesforce.com (CRM)? Will the stock follow its overarching trend or make a quick reversal?

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