Hook / Thesis
Salesforce is no longer the hyper-growth story it was during its cloud-acceleration years, but the market has likely overshot on the downside. Recent results show decelerating revenue growth - Q2 FY2026 revenue was $10.236B (period 05/01/2025 - 07/31/2025) versus $9.325B in the comparable quarter last year, roughly +9.8% year-over-year - yet the company still prints healthy operating income ($2.332B in the quarter) and meaningful net profit ($1.887B). With diluted shares of ~962M reported in the latest quarterly filing, the current股 price near $229 implies an approximate market capitalization of ~$220.6B and a valuation (LTM) of roughly 5.7x revenue and ~35x earnings. That multiple looks manageable given the company’s durable recurring revenue base, improving margins and modest net debt.
This is an actionable long trade idea: entry in the $220 - $235 range, stop under $200 and staged upside targets at $280, $330 and $370. The risk/reward here is asymmetric in my view: growth is slower but more predictable, and the balance sheet and cash generation give Salesforce optionality (buybacks, dividends, targeted M&A) that could lead to multiple expansion as investor fears abate.
What Salesforce does and why investors should care
Salesforce provides enterprise cloud solutions centered on Customer 360 - a single-source-of-truth approach that stitches CRM, Service Cloud, Marketing Cloud, Commerce Cloud and integration tools like MuleSoft. The business is fundamentally subscription-driven, giving the company predictable recurring revenue and high gross margins. Enterprises’ ongoing digital transformation, plus the push to operationalize AI across sales, service and marketing stacks, make Salesforce strategically relevant.
From an investor standpoint, there are three basic reasons to pay attention:
- Recurring revenue and scale: Quarterly revenues remain large and steady - the most recent quarter (05/01/2025 - 07/31/2025) delivered $10.236B, continuing a multi-quarter run of ~$9-10B sales per quarter.
- Profitability and cash flow: Operating income in the latest quarter was $2.332B, net income $1.887B, and the company reported positive operating cash flow across recent quarters (e.g., 06/30/2025 quarter operating cash flow continuing was $740M and the prior quarter was $6.476B, showing variability but solid aggregate cash generation).
- Balance sheet optionality: Total assets reported at 07/31/2025 were $97.573B with equity attributable to the parent of $61.328B and long-term debt of $8.436B. That is a manageable leverage profile given free cash flow generation.
Recent financial trend snapshot (selected figures)
- Q2 FY2026 (05/01/2025 - 07/31/2025): Revenues = $10.236B; Operating income = $2.332B; Net income = $1.887B; Diluted average shares = 962M. (Filing accepted 09/04/2025)
- Q1 FY2026 (02/01/2025 - 04/30/2025): Revenues = $9.829B; Net income = $1.541B; Operating cash flow (continuing) = $6.476B. (Filing accepted 05/28/2025)
- Q3 FY2025 (08/01/2024 - 10/31/2024): Revenues = $9.444B; Operating income = $1.893B; Net income = $1.527B. (Filing accepted 12/04/2024)
- Q2 FY2025 (05/01/2024 - 07/31/2024): Revenues = $9.325B; Net income = $1.429B. (Filing accepted 08/29/2024)
Put together, the last four reported quarters sum to approximately $38.83B of revenue (LTM) and about $6.38B of net income (LTM). Using the diluted share count of ~962M and a share price near $229, implied market cap is approximately $220.6B, giving a rough P/S of 5.7x and a P/E of ~34.6x on LTM figures. Those are the key base valuation metrics I'm using to frame the trade.
Valuation and why I think the stock is materially discounted
Two points drive my view that the market is overly pessimistic:
- Growth has slowed from the double-digit rates investors expected a couple years ago, but it has not disappeared. The most recent quarter was +9.8% YoY versus the comparable quarter a year ago. That is slower than the company's historic growth, but still meaningful for a company of Salesforce’s scale.
- Profitability and cash flow are positive and sizable. Operating margins in recent quarters are in the low-to-mid 20% range (Q2 operating income of $2.332B on $10.236B revenue ~22.8% operating margin), and net income for the last four quarters totals roughly $6.38B. Given the balance sheet (long-term debt ~$8.44B) and recurring revenue model, those cash flows support a higher multiple if investors regain confidence in growth stability and margin durability.
Using the implied market cap (~$220.6B) and LTM revenue (~$38.83B), P/S ~5.7x. For a company generating >$6B of net income and with a clean net-debt picture, a mid-30s P/E is not excessive if growth stabilizes. The current share price is still ~38% below the one-year high (~$367 in the last 12 months), so much of the bearish view is priced in.
Trade plan (actionable)
- Direction: Long
- Time horizon: Position (3 - 12 months)
- Risk level: Medium
- Entry: Primary entry band $220 - $235. If you want a better risk/reward, scale in: half size at $235 - $229, add at $225 - $220.
- Stop loss: $198 - if the stock breaks and closes decisively below $200, cut position. That represents roughly a 12-13% stop from the top of the entry band and protects against deeper de-rating or near-term macro shock.
- Targets:
- Target 1: $280 (near-term recovery and multiple re-rating to mid-20s P/E)
- Target 2: $330 (material multiple recovery and partial mean reversion toward prior highs)
- Target 3: $370+ (stretch target — approaches prior 52-week highs; to be taken only on sustained improvement in guidance/growth)
- Position sizing guidance: Keep any single position to a size that limits portfolio drawdown to a tolerance you accept (stop is tight relative to entry band). Consider buying in tranches rather than all at once.
Catalysts that could drive the trade
- Enterprise AI adoption accelerating: broader AI-driven upgrades in CRM and service automation could spur incremental deals and higher average contract values.
- Better-than-feared guidance or sustained organic growth above low-double-digits would cause a multiple expansion from panic valuations.
- Aggressive capital allocation - an increase in buybacks or continued, growing dividend payments (quarterly dividend recently at ~$0.416 per quarter) would support the equity.
- Margin expansion from operating leverage as R&D and SG&A scale with SaaS revenue rather than linearly - operating margins have been improving and are a lever that management can control.
Risks and counterarguments
- Macro and enterprise IT spend risk: If companies pull back on digital transformation or defer large CRM projects, Salesforce’s top line could slow further. The market is already discounting lower growth; a deeper slowdown would validate that discount and press the stock lower.
- Competition and product risk: Large cloud players and niche best-of-breed vendors continue to encroach in marketing, service and analytics. If Salesforce’s ecosystem or product cadence falters, retention and net retention rates could drop.
- Execution on efficiency: The company’s operating expenses are sizable (operating expenses were $5.662B in the latest reported quarter) and rely on continued discipline. If investments in AI or product do not pay back quickly, margins could compress.
- Multiple compression risk: The stock is sensitive to multiple contraction. Even with stable earnings, sentiment can drive the P/E lower (and price down) if investors prefer higher-growth names or if interest rates move up materially.
- Counterargument (what bears will say): The deceleration in revenue growth from prior years proves the addressable market is saturating, and Salesforce’s scale means it will never again command the growth multiple of a rapid early-stage SaaS company. Higher valuation requires a growth re-acceleration, which may not occur.
Why I still prefer the long here (rebuttal to the counterargument)
Yes, growth has slowed, but that is the point: the risk of permanent impairment is lower. Salesforce has strong recurring revenue, improving operating margins (Q2 operating income $2.332B on $10.236B revenue), and a balance sheet with limited long-term debt (~$8.436B) versus equity of $61.328B. The company already pays a regular quarterly dividend (recently ~ $0.416 per quarter), indicating management’s willingness to return cash. If growth stabilizes in the high-single to low-double digits, the current multiple can expand modestly and produce solid returns for a patient investor.
Conclusion and what would change my mind
Concrete stance: I am constructive and recommend a tactical long position in CRM at $220 - $235, stop under $200, with staged targets at $280, $330 and $370. Risk is real - notably enterprise spend weakness and competitive pressure - but the company’s size, profitability and cash generation make the current price a reasonable place to buy exposure. Time horizon for the trade is 3-12 months, where catalysts (AI adoption momentum, better guidance, buybacks) can re-rate the stock.
What would change my mind: I would become materially less constructive if Salesforce reported a sustained fall in subscription retention or net revenue retention, if operating margins deteriorated meaningfully (e.g., operating income falling below 15% of revenue on a sustained basis), or if operating cash flow turned persistently negative. Conversely, sustained revenue acceleration above low double-digits, or a material increase in buybacks/dividend policy, would make me more aggressive on the position.
Note: All financial figures cited are from the company's recently filed quarterly financials (latest quarter ended 07/31/2025, filed 09/04/2025 and prior quarter filings). Price references reflect the most recent trade/quote in the market snapshot around 01/26/2026.
— Avery Klein, Senior Equity Analyst