What happened
Shares of Salesforce (NYSE: CRM) were up as much as 3.5% Thursday morning. By 1:22 p.m. ET, it had given back some of those gains, up 1.7%.
The company held its annual investor day on Wednesday, where management updated its strategy and long-term growth opportunities. Worries over the economy and higher interest rates have sent the stock down 41% year to date, but the presentation yesterday was a good reminder of how much room Salesforce still has to grow.
So what
Gartner now sees Salesforce's total addressable market reaching nearly $300 billion by 2026, representing a compound annual growth rate of 13%. Management sees enormous potential to continue expanding its Customer 360 platform to specific industries. Over the last year, Salesforce's nonprofit and higher education business has grown from $2.9 billion to $3.8 billion, or about 50%.
Salesforce also has a lot of opportunity expanding across geographies, where international annual recurring revenue is growing faster than North America.
Now what
These types of presentations usually have a positive impact on the stock, as they should, since it gets investors more focused on the long-term value of the business. Nonetheless, Salesforce will have to navigate a weakening economy that could weigh on the stock's performance in the near term.
Revenue growth clocked in at 26% on a constant-currency basis in the last quarter, but guidance calls for a slower growth rate of 20% for the full year. In the near term, management is seeing careful buying behavior from customers. It particularly noted slowing demand from small and mid-sized businesses. These are leading indicators of a slowing economy.
Still, from a long-term perspective, there's a lot to like. Most importantly, Salesforce offers a tempting valuation of 5.1 times trailing sales. That is cheap for a fast-growing software business, where private transactions for software companies can go for as high as 10 times sales.
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John Ballard has positions in Salesforce, Inc. The Motley Fool has positions in and recommends Salesforce, Inc. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
