salesforce.com, inc.'s (NYSE:CRM) Price Is Out Of Tune With Earnings
The value for money (or "P / E") of salesforce.com, inc. (NYSE: CRM) of 57.2x could make it look like a strong sell right now compared to the US market. Roughly half of companies have P / E below 20x, and even below 11x P / E ratios are common. However, it is not advisable to just take the P / E at face value as there may be an explanation for why it is so high.
salesforce.com has certainly done a good job lately as earnings growth has been positive while most other companies have seen their earnings decline. The P / E ratio is likely high as investors believe the company will continue to do better than most in headwinds in the market. You'd really hope so, or you're paying a pretty high price for no particular reason.
Check out our latest analysis for salesforce.com
Scroll to continue with the content
Microsoft - New Age of Business
Make data-driven supply and demand decisions
Learn how to build a resilient supply chain, empower your business to adapt to supply chain disruptions, and ensure business continuity.
Would you like to get the full picture of analyst estimates for the company? Then our free report on salesforce.com will help you find out what's on the horizon.
Is there enough growth for salesforce.com?
The only time you're really comfortable seeing a P / E as steep as salesforce.com is when the company's growth is on track to significantly outperform the market.
A look back shows that the company increased earnings per share by an impressive 332% over the past year. Due to the strong recent performance, the EPS has increased by a total of 2,631% in the last three years. Accordingly, shareholders would likely have welcomed these medium-term earnings growth rates.
Estimates by analysts covering the company suggest earnings growth will turn into negative territory, falling 18% every year for the next three years. That's a disappointing result as the market is expected to grow 14% every year.
With that in mind, it's alarming that salesforce.com's P / E is above the majority of other companies. Apparently, many of the company's investors dislike the pessimism of the analyst cohort and are unwilling to let go of their stocks at any cost. Only the boldest would assume these prices are sustainable, as these declining earnings should ultimately weigh heavily on the stock price.
Conclusion On the P / E from salesforce.com
It doesn't make sense to use price / earnings ratio alone to determine whether you should sell your stock. However, this can be a practical guide to the company's future prospects.
We found that salesforce.com is currently trading at a much higher than expected P / E for a company whose earnings are expected to decline. If we see a poor outlook with declining earnings, we suspect that the stock price is experiencing a decline, driving the high P / E ratio down. Unless these conditions improve noticeably, it is very difficult to accept these prices as reasonable.
Don't forget that there may be other risks. For example, we identified 3 warning signs for salesforce.com (1 is significant) that you should be aware of.
Of course, if you look at a few good candidates, you could find a fantastic investment. So take a look at this free list of companies with strong growth records trading below 20x P / E ratios.
This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
Do you have any feedback on this article? Concerned about the content? Contact us. Alternatively, you can also send an email to the editorial team (at) simplywallst.com.
In this article
You should check here to buy the best price guaranteed products.
87-year-old California woman, a retired Los Angeles Sheriff's sergeant, found dead in freezer, authorities say
CG: HOU@LAA - 9/21/21
Camila Cabello shows off her curves in thong bikini while enjoying beach day in Miami
‘I Just Couldn’t Say No,’ Says Meghan McCain About Joining ‘DailyMailTV’
Zooey Deschanel, Jason Alexander, More Stars Complain About Not Having Emmys in Hilarious Sketch
Elvira 's Cassandra Peterson Reveals 19-Year Relationship With a Woman: 'I've Got to Be Truthful'