Salesforce (CRM) Rises as Activist Starboard Buys Stake

Salesforce CRM shares rose 4.3% on Tuesday after the activist hedge fund Starboard Value founder Jeff Smith revealed buying a stake in the enterprise software maker during an interview with CNBC’s David Faber.

Smith didn’t disclose the dollar amount during the interview but stated that the stake is significant. The investment firm believes that Salesforce has not taken advantage of its position as a market leader and lags in profitability compared with its peers.

During the interview, Smith stated that his firm intends to be a long-term investor and aims at improving the margins of the cloud software maker.

What Makes CRM a Lucrative Investment Option?

We believe that Salesforce’s impressive growth profile, combined with attractive valuations, is attracting long-term investors. The company has been benefiting from the strong adoption of its cloud-based products and solutions as customers are undergoing a major digital transformation amid the ongoing hybrid work environment.

Salesforce Inc. Price and Consensus

Salesforce Inc. price-consensus-chart | Salesforce Inc. Quote

Its ability to provide an integrated solution for customers’ business problems is the key driver. We believe that accelerated digital transformation will consistently open a huge growth opportunity for Salesforce. As enterprises progress with digital transformation efforts, the use of cloud services is expected to significantly shoot up in the upcoming period.

Per a Grand View Research report, the global CRM software market is projected to witness a CAGR of 13.3% during the 2022-2030 period. With its SaaS-based CRM and social enterprise applications, we believe Salesforce is well-positioned to lead the market.

Additionally, the cloud-based customer relationship management software provider’s sustained focus on acquisitions and partnerships is helping it enhance its product offerings and expand across newer markets. The buyouts of Slack, Tableau, ClickSoftware, Mulesoft, Datorama and CloudCraze over the last couple of years have been significantly beneficial for the company.

Salesforce's partnership agreements with the likes of Amazon AMZN and Google’s parent Alphabet for the firms’ cloud services have been helping it expand its international operations. The company also entered into an alliance with Apple through which it is offering new apps for iPhones and iPads.

Salesforce also expanded its global strategic alliance with Amazon Web Services (“AWS”) to focus on new product integrations that will simplify secure data sharing and synchronizing across the AWS and Salesforce services.

Accelerated digital transformation and a sustained focus on acquisitions and partnerships are driving its revenues. Salesforce’s revenues have almost doubled from $13.3 billion in fiscal 2019 to $26.5 billion in fiscal 2022. Moreover, the company targets to achieve annual revenues of $50 billion in fiscal 2026.

Attractive Valuation Profile

In our opinion, shares of Salesforce are currently available at a huge valuation discount, which makes it a lucrative investment option for value investors like Starboard Value. CRM stock has plunged 39.5% year to date and currently trades at approximately 51% lower than the 52-week high of $311.75 attained on Nov 9, 2021.

Moreover, the stock currently trades at a forward 12-month price-to-sales multiple of 4.50, significantly lower than the five-year high of 9.96 and the five-year average of 5.64.

Technology has been among the most-battered sectors amid a broader market sell-off so far this year. However, this sell-off in the broader equity market has led to a massive correction in several technology companies’ stock prices. These companies were considered to be grossly overvalued at the sector’s peak in 2021. With this correction, several tech stocks are currently trading lower than their 52-week high and at an attractive valuation as well despite strong fundamentals.

This has led several private equity and hedge fund investors to buy stakes in fundamentally strong companies, which are available at a huge valuation discount. Apart from Salesforce, Starboard Value has a buildup stake in Splunk SPLK and Wix.com WIX.

Splunk has lost 34.5% of its value year to date and currently trades at approximately 57% lower than its 52-week high of $176.66 attained on Nov 10, 2021. Moreover, the stock currently trades at a forward 12-month price-to-sales multiple of 3.24, significantly lower than the five-year high of 9.27 and the five-year average of 5.86.

Wix has lost 51.8% of its value year to date and currently trades at approximately 63.3% lower than its 52-week high of $207 attained on Nov 11, 2021. Additionally, the stock currently trades at a forward 12-month price-to-sales multiple of 2.90, significantly lower than the five-year high of 7.55 and the five-year average of 3.09.

Currently, Splunk sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Meanwhile, Salesforce and Wix each carry a Zacks Rank #3 (Hold), and Amazon has a Zacks Rank #4 (Sell).

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."

Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.8% per year. So be sure to give these hand-picked 7 your immediate attention. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.