Is Salesforce Stock a Buy Before Its Q3 Earnings…

Is Salesforce Stock a Buy Before Its Q3 Earnings Report?

Salesforce (CRM), valued at $326.1 billion, is among the largest software companies globally. It provides a range of customer relationship management technologies to enterprises on a subscription basis. These offerings allow clients to store data, monitor leads, forecast opportunities, gain data-backed insights, and more.

The software-as-a-services (SaaS) giant went public in June 2004 and has since returned close to 8,000% to shareholders. While the tech stock trades near all-time highs, it has returned just 13% to investors in the last three years - trailing the S&P 500 Index ($SPX), which is up 27.4% in this period.

So, let’s see if CRM stock is still a good investment before its upcoming earnings report.

What to Expect From Salesforce in Fiscal Q3 of 2025

Salesforce is scheduled to announce its fiscal Q3 of 2025 (ended in October) results on Wednesday, Dec. 4. Analysts expect the company to report revenue of $9.34 billion and adjusted earnings per share of $2.44. In the year-ago period, CRM reported sales of $8.7 billion and earnings of $1.96 per share. So, while sales growth is forecast at 7.4%, earnings growth estimates are higher, at 24.5% year over year.

During its last earnings call, Salesforce had forecast fiscal Q3 sales between $9.31 billion and $9.36 billion, with earnings in the range of $2.42 and $2.44 per share. Management noted that customer spending remains sluggish, resulting in longer sales cycles.

Like several other companies, Salesforce has introduced cost savings initiatives to improve the bottom line amid slowing revenue growth. Its gross margins expanded by 140 basis points, while operating margins stood at 20.2% in Q3, higher than 17.7% in the year-ago quarter.

Notably, Salesforce’s free cash flow in the last 12 months totaled $11.46 billion, up from $9.5 billion in fiscal 2024 and $4 billion in fiscal 2021.

Is CRM Stock Undervalued?

After dominating the customer relationship management segment for years, Salesforce is now introducing artificial intelligence (AI)-backed products to acquire and retain customers. Its Agentforce is a virtual assistant that can help users with appointment scheduling, cybersecurity threat analysis, and more. By leveraging its AI capabilities, Salesforce aims to further enhance the customer service process.

Salesforce has also begun testing a copilot called Einstein that helps users compose product pages and promotions based on a few queries. These robust offerings might accelerate Salesforce's revenue growth in the near term, especially if the AI narrative remains bullish.

CRM has a massive and expanding customer base, many of which are Fortune 500 companies. It now has an opportunity to cross-sell its AI offerings and diversify its revenue and cash flow.

Analysts tracking CRM stock expect its revenue to rise from $34.86 billion in fiscal 2024 to $41.26 billion in fiscal 2026. Its adjusted earnings per share are forecast to rise from $8.22 to $11.13 in this period. Priced at 30.8x forward earnings, CRM stock is expensive compared to the S&P 500 multiple of 25x; however, the stock's historical average five-year P/E multiple is an even richer 43.7x.

Out of the 43 analysts covering CRM stock, the average rating is a “strong buy,” up from “moderate buy” a couple of months ago. That said, the average target price is $317.33, about 7% lower than the current trading price.

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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