Salesforce (NYSE:CRM) has gained nearly 60% in the past year alone, and its performance is even more impressive on a longer time frame. Over the past decade, investors in Salesforce have gained a stratospheric 1,010%, versus a far more modest cumulative gain of 127% for the S&P 500 index in the same period.
CRM data by YCharts
With the stock delivering such massive returns and trading near historical highs, investors may understandably feel reluctant to buy Salesforce stock at current prices. From a contrarian perspective, the time to pull the trigger is when the stock is substantially down and trading near its lows of the year, not when it is reaching record high price levels.
On the other hand, past price performance and valuation can be remarkably different things, and only because a stock has risen steeply, that does not mean it’s necessarily overvalued. Importantly, valuation needs to be interpreted in its due context. Companies with superior growth obviously deserve an above-average valuation, and Salesforce is an exceptional growth stock.
There is no infallible formula to pick winning stocks, but statistical data shows that quantitative indicators such as financial quality, valuation, momentum and relative strength tend to generate above-average returns for investors in the long term. Let’s take a look at Salesforce from a quantitative perspective in order to find out what the numbers are saying about the stock and its potential returns going forward.
Financial Quality
Salesforce is a market leader in software-as-a-service. The company offers a deep ecosystem of services across different verticals that are critically important to customers. Brand recognition, the ubiquity of products and access to data provide solid sources of competitive strength for the business.
Salesforce competes against strong players such as Microsoft (Nasdaq:MSFT), Oracle (NYSE:ORCL) and SAP AG (NYSE:SAP), but it has outperformed the competition and consolidated its leadership position in the industry over the past several years.
Source: Salesforce
The enterprise software industry is going through a major shift over the past several years, since many corporations of all sizes are moving toward the cloud and subscription-based services for all kinds of applications.
Salesforce is a major driving force behind this trend and also one of the main beneficiaries from it. Back in 2009, the company was making $1.08 billion in revenue, and Wall Street analysts are currently expecting Salesforce to make $13.17 billion in sales in the current fiscal year.
