Salesforce stock price has retreated in the past few weeks and moved into a bear market this year after falling by 15% from its all-time high. The CRM share price plunged to a low of $310, its lowest swing since November 8. So, what next for the Salesforce share price ahead of earnings?
Salesforce stock price analysis
There are substantial risks that the Salesforce stock price will crash after it publishes its earnings on Wednesday. The daily chart shows that it has formed a double-top pattern at $36638. It has moved slightly below the key support at $314.4, its lowest swing on January 13.
A double-top pattern is one of the most bearish signs in the market. It has also crashed below the 50-day moving average and the crucial support level at $314.4, its highest swing in March 2024.
Salesforce shares have also crashed below the 23.6% Fibonacci Retracement level and the 50-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) and the MACD have all pointed downwards.
Therefore, there is a risk that the CRM stock price will continue falling, with the next level to watch being the 50% retracement point at $280. This target is about 9.5% below the current level. This view will become invalid if the Salesforce share price rises above $320.
CRM earnings ahead
Salesforce, the biggest player in the customer relations industry, will be in the spotlight when it publishes its fourth-quarter and annual results. These numbers will provide more color about the business and whether its momentum, especially in the artificial intelligence industry is growing.
The most recent results showed that Salesforce’s revenue rose by 8% in the third quarter to $9.4 billion. This revenue grew as the company’s subscription and support figure jumped by 9% to $8.8 billion. Salesforce grew its margins, with the operating margin rising by 280 basis points to 20%.
According to Yahoo Finance, the average revenue estimate for the company is $10 billion, a 8% increase from the same period last year. This revenue will translate to an annual figure of $37.96 billion, lower than the recent guidance of between $9.9 billion and $10 billion.
Read more: Salesforce Q3 earnings: ‘AI craze has not hit but it will’
Salesforce valuation
There a number of concerns about the Salesforce stock price. First, the company is no longer growing as it did in the past. Its revenue growth is slightly lower than other top companies like Microsoft, Alphabet, and Amazon.
Salesforce has also lagged behind in the artificial intelligence (AI) industry, where companies like Microsoft and Google are doing well.
The company is also fairly overvalued since it trades at a higher premium than peers. It has a forward price-to-earnings ratio of 31.7, higher than the sector median of 25. This is a big number considering that the S&P 500 index, which has an earnings growth of 16, has a multiple of 22.
The best way to value a company like Salesforce is using the rule-of-40 metric. It has a revenue growth of about 9% and a net and EBITDA margin of 16% and 25%. This gives it a rule of 40 metric of between 25% and 34%. That is a sign that the management is prioritizing growth than profitability for now.
To be clear: Salesforce is a good company, with a strong market share in the CRM industry. It has also grown its business in other areas like business intelligence, communication, and app integration. Additionally, it has a room to grow its market share in the AI industry, by creating solutions and upselling its existing customers.
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