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Buy Resurgent Salesforce Stock Before Q2 Earnings for Long-Term Growth?

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Salesforce (CRM - Free Report) is one of the final huge technology companies to report its second quarter earnings results. CRM shares have climbed 15% in the past three months to outpace the tech sector, including a big pop in the last several weeks.

Despite its recent run, the cloud-based business software firm trades roughly 8% below its records heading into Q2 FY22 financial release that’s due out after the closing bell on Wednesday, August 25.

Salesforce’s Pitch

Salesforce helped popularize the booming software-as-a-service industry that businesses of all shapes and sizes now rely on to help them do just about everything in our digital age. CRM’s cloud-based customer relationship management services offer clients a range of tools and applications to help run everything from sales and e-commerce to marketing and analytics.

The company posted record sales last year, with revenue up 24% to $21.3 billion, to crack $20 billion for the first time. CRM also raised its guidance and it’s poised to thrive in the hybrid work environment that will likely thrust non-email communication to the forefront.

Salesforce made a splash in December when it announced its $28 billion deal to buy Slack . The company completed that purchase in July and it is expected to help CRM compete against Microsoft (MSFT - Free Report) and Zoom Video (ZM - Free Report) in the work communication space. The deal comes roughly two years after Salesforce paid $15 billion for data-analytics platform Tableau.

Zacks Investment Research
Image Source: Zacks Investment Research

What Else

Salesforce topped our Q1 estimates and it’s crushed our adjusted earnings projections by an average of 82% in the trailing four periods. Looking ahead, Zacks estimates call for CRM’s FY22 revenue to climb 22% to $26 billion, with FY23 projected to jump 19% higher to come in at around $31 billion.

The tech firm’s adjusted FY22 earnings are projected to fall 23% to $3.80 a share, with FY23 then set to bounce 12% above our current-year estimate. Salesforce’s consensus earnings estimates are up significantly compared to where they were before it posted its Q1 results, but recent stagnation helps it land a Zacks Rank #3 (Hold).

Wall Street remains largely high on Salesforce, with 18 of the 23 brokerage recommendations Zacks has currently coming in at “Strong Buys,” with the other five at “Holds.” As we mentioned up top, CRM has surged recently, including a nice pop Monday.

Still, at around $260 a share, CRM trades roughly 8% below its records it hit last September. This could give it room to run since the Nasdaq and other big names in tech from Apple (AAPL - Free Report) to Adobe (ADBE - Free Report) have all broken records recently.

Bottom Line

Salesforce still trades at sky-high valuations in terms of forward earnings and it does not yet pay a dividend as it focuses on growth. Luckily, Salesforce has outpaced the tech sector in the last five years, up 235% vs. 175%. Therefore, investors with long-term outlooks might want to consider Salesforce for its ability to keep expanding in a software-dominated business world.