Salesforce is a hot topic.
NASDAQ:CRM), with activist investors and hedge funds continuing to flock to the company in large numbers. Everyone is wondering if this presents a great opportunity to invest in the tech giant. Or if it could cause more harm than good.
It remains to see if these activists will be a positive or negative force in the future of Salesforce. Salesforce stock is a compelling investment, despite the fact that it continues to show strong growth and its shares are still trading at an attractive valuation.
Therefore, I am bullish about the stock.
Salesforce is attracting activist investors The company's remarkable growth has led to an improvement in its performance.
Hedge funds are keen to unlock additional value in the company because of their high profit margins and ability to create synergies among its subsidiaries.
Just a few weeks back, Elliot Management, one the most successful activist hedge fund managers, announced that it had acquired a multibillion dollar investment in Salesforce. Starboard Value, an activist investor, had also purchased a "significant" stake last October. According to
CNBC's David Faber and Starboard founder Jeff Smith want to improve Salesforce's growth and profitability. He believes that Salesforce is currently "subpar" in comparison to its peers. He calls for greater performance and cites Salesforce's targets to be "less ambitious than its peers".
As more prominent investors jump on to Salesforce, the buzz surrounding it continues to grow. Third Point, an activist hedge fund, announced in February that it had purchased a stake of the company. This joined other well-known investors. But that's not all. Stephen Mandel's Lone Pine, an activist hedge fund, also announced its purchase of a stake in Salesforce via its 13F filing. Starboard Value, one of the first to invest in Salesforce, increased its stake and now holds around 3,000,000 shares. Point72 Asset Management, Steven Cohen's hedge fund, has joined the fray with an additional position in Salesforce worth 3.35 million shares. These are not the only major players making headlines. There are many smaller hedge funds also jumping on the bandwagon with a new position in Salesforce of approximately 3.35 million shares. It seems activist investors believe that there is more value. Hedge funds believe that shares are too low-valued, and can unlock additional value for the company, despite the company's remarkable performance so far. What does this all mean for Salesforce shareholders and employees? Hedge funds' presence and influence can be a positive catalyst. These investors are motivated to increase the value of their investments. They probably have plans to increase Salesforce's profit margins and overall growth. They wouldn't spend their capital if they didn't have a solid strategy. There is also the possibility of confusion and a lackluster direction for the company. It can be difficult to keep everyone on the same page and aligned with so many stakeholders. Salesforce actually announced in January that it would add three independent directors to its board to ease the pressure from all these activists. After Elliott Management, an investor, announced that it was planning to nominate "a slate" of directors for Salesforce's board. It is unclear if the influx of activist investors will allow Salesforce to remain focused on meaningful initiatives, or create chaos and confusion. It's difficult to predict the outcome of all these voices competing for attention. Salesforce currently has a Moderate Buy consensus rating. This is based on 26 Buys and nine Holds as well as one Sell in the last three months. The average price is $192.19.
The Salesforce stock forecast suggests a potential 18.5% decline.
The Takeaway They believe that the stock is a precious gem and needs to be polished to unlock its full potential. Starboard has hinted at this before, but it's difficult to know if these activists will be a blessing for the company or a curse, as I mentioned earlier. It makes sense to avoid any unexpected impacts on the business and to value it based upon its future performance and estimates. Salesforce's Q3 results showed that it was able to maintain its revenue growth of the mid-teens. Revenues increased 14% or 19% year-over-year.
To $7.84 billion. The company forecasts double-digit growth in the Q4 results and expects to finish Fiscal 2022 with 17% revenue increase. This is impressive in a year that has seen heavy FX headwinds, and businesses trying to cut costs.
Analysts predict that these growth rates will result in earnings per share at $4.93 in Fiscal 20,23. This is expected to rise to $5.86 by Fiscal 2024. This means that shares currently trade at 27.7x their 2024 forward earnings. This multiple seems reasonable, given the expectation for sustained double-digit earnings growth per share.