Unpacking Salesforce.com Stock After the Big Slack Buy

CRM has found support on the charts amid this week's pullback

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The running joke about Salesforce.com, Inc. (NYSE:CRM) is that everyone uses it, yet no one knows what it does. The  cloud-based software company's primary focus is on helping businesses with their customer relationship management through usage of Salesforce sales, service, and marketing applications.

Salesforce made headlines on Wall Street earlier this week by confirming its acquisition of the popular work-from-home company, Slack Technologies (WORK), on Dec. 1. This was a very expensive move done with the goal of boosting both companies' chances of legitimately competing with Microsoft's (MSFT) Teams function. The shares of Salesforce stock plunged down 7.5% in the day following its announced acquisition of Slack Technologies for $27.7 billion in cash and stock.

The acquisition news brought out all the bears. Within 24 hours of the news breaking, Salesforce stock received no less than three price-target cuts, including one from Barclays to $276 from $315. However, Raymond James also chimed in on CRM with a price-target hike to $280 from $255.

Despite taking a 10% haircut this week after the news, CRM remains up 37% in 2020. Plus, the pullback has found support at the shares' 160-day moving average, a trendline not breached since early May. It's also worth noting, however, that after this weeks damage, the stock sports a 14-day Relative Strength Index (RSI) of 31, which sits just on the cusp of "oversold" territory, meaning a short-term bounce may be in the cards.

CRM Daily Stock Chart

From a fundamentals point of view, Salesforce.com stock is stands in a great position when compared to most tech companies today. The company is growing its revenue at an amazing rate, adding about $12 billion in revenue since 2017. As for its net income, Salesforce has seen some inconsistency, but has ultimately grown net profits in a big way. Perhaps the most impressive thing about Salesforce, from a fundamental perspective, is the $9.49 billion in cash the company has on its balance sheet. This is significantly higher than the $5.84 billion it has in total debt. 

CRM's price-earnings ratio of 57.28 is typically interpreted as high, but traders will have a hard time finding big tech companies at a much lower figure in today’s market. Overall, for a company growing as quickly as Salesforce has been growing, CRM's price-earnings ratio should not be an issue for much longer. Investors may be well served to keep an eye out for any major dips in Salesforce stock price as a potential entry point.


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