Salesforce has emerged as the frontrunner in the Dow Jones Industrial Average this year, solidifying its position as the best-performing stock. The recent release of its earnings report has provided an additional boost to the company. However, analysts are still on the lookout for signs that Salesforce can reclaim its historical revenue growth rates.
The impressive financial results have propelled Salesforce's shares, which were up by 9.1% at $251.35 during premarket trading on Thursday, following the release of the third-quarter earnings report. These gains will undoubtedly contribute to the stock's outstanding performance this year, as it has already surged by 74% as of Wednesday's closing, narrowly surpassing Intel's 70% increase.
D.A. Davidson analyst Gil Luria acknowledged Salesforce's unwavering commitment to margin expansion and operational excellence, factors that have consistently driven favorable profitability trends for the company. He also lauded Salesforce's strong quarterly operating margin of 31.2% and its commitment to maintaining future margins above 30%. Consequently, Luria raised his target price for the stock to $230 from $200. However, despite his positive sentiments, he maintained a Neutral rating on the shares due to concerns about its dwindling revenue growth.
While Salesforce enjoys formidable pricing power and possesses a durable competitive position in its industry, Luria remained cautious about the lack of significant top-line catalysts that could propel further growth. As a result, he opted to remain on the sidelines for now.
Overall, Salesforce continues to impress investors with its remarkable performance in the market. However, the challenge lies in sustaining and reviving its revenue growth, which will be crucial in determining its long-term success.
Salesforce Revenue Shows Slower Growth, Still Promising
Revenue for the quarter rose 11%, marking a significant increase from the previous year's figures. However, the growth rate is at its slowest in over 10 years. Despite this, Guggenheim Securities analyst John DiFucci believes Salesforce can achieve double-digit revenue growth in the next fiscal year, easing some investor concerns. With no set price target, DiFucci rates the stock as Neutral.
One area where Salesforce is pinning its hopes for growth is artificial intelligence (AI). However, the company acknowledges that it will take time for AI to become a significant source of revenue.
While the slower growth rate may raise concerns, some analysts urge investors to consider the challenging macroeconomic environment for software sales before making judgments. Oppenheimer analyst Brian Schwartz presents a base-case scenario where Salesforce's revenue growth remains in the mid-to-high single digits over the next few years. Nonetheless, he believes that improving margins and cash flows will outweigh this and raise optimism. Schwartz shows confidence by raising the target price on Salesforce to $275 from $250 and maintaining an Outperform rating on the stock.