Salesforce (Ticker Symbol: CRM) reported better than expected earnings after the closing bell on Tuesday that beat on the top and bottom lines. The cloud software company reported a massive earnings per share beat of .93 cents per share vs. Wall Street analysts’ expectations of .61 cents per share. Revenue reported was a slight beat at $3.74 billion vs. Wall Street analysts’ expectations of $3.68 billion. Salesforce’s product portfolio continues to grow beyond sales software and into customer support, marketing, and services. The company’s Service Cloud produced $1.2 billion in revenue this quarter, which was a record for the product.
Salesforce is benefitting from its $6.5 billion dollar deal to buy the software company MuleSoft in 2018. The company paid a 33% premium on the acquisition. The platform that MuleSoft makes helps Fortune 500 companies integrate software applications, data, and devices. The acquisition of MuleSoft will enable Salesforce users to bring together data across different cloud products. MuleSoft boasts more than 1,200 users, which include Coca-Cola, Barclays, and Unilever. The companies use MuleSoft to innovate more quickly and increase operational efficiency.
Salesforce’s stock price has been a great performer for its shareholders over the past two years. The stock started off to a great start in 2017 and 2018, led by consecutive positive earnings and guidance reports. Salesforce’s stock found price support multiple times throughout 2017 and 2018 at its 100-day Moving Average. The stock proceeded to move higher completing its nearly 125% rally that it began at the start of 2017.
In the third quarter of 2018, Salesforce’s stock began to top, forming a bearish divergence pattern, as indicated on the chart by the purple squares, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal as occurred in Salesforce’s case. The stock spent the third and fourth quarters of 2018 pulling back almost 30% before finding price support near the $120.00 price level. Salesforce’s stock proceeded to then form a Double Bottom reversal pattern. The Double Bottom pattern looks like a “W” and can be used to find a change in trend and a possible momentum reversal. The stock broke out of its Double Bottom to the upside in the first quarter of 2019. It then proceeded to trade to an all-time high of $167.56 on April 29, 2019. The stock is currently trading above both its 100 and 200-day Moving Averages.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 19 analysts offering 12-month price targets, the average price target for Salesforce’s stock is $183.56. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $157.81.
Salesforce continues to be the dominant company within customer relationship management (CRM) services. Shareholders have been continually rewarded by remaining long term holders of the stock. Investors in the company should look to the next earnings release on September 1st, for fresh news on the company, especially on the Service Cloud product.