Salesforce's Stock Is Dirt Cheap

Investment Thesis - Salesforce's stock price decreased by approximately 7% over the last three months, while the broader market increased by 10% [1] - The decline was attributed to a sell-off following the earnings release, which the company believes was an overreaction [1] - The company's fundamentals remain strong, and the recent dip has made the stock more attractive, leading to a "Strong Buy" rating [1] Recent Developments - Salesforce's latest quarterly earnings report showed a 10.7% year-over-year revenue growth, with adjusted EPS increasing from $1.69 to $2.44 [2] - The operating margin improved significantly from 13.6% to 18.8% year-over-year, indicating strong financial performance [3] Financial Position - As of the latest reporting date, Salesforce had $17.7 billion in cash and a low financial leverage ratio, with total debt at $13.39 billion [3][4] - The company has a current ratio of 1.11 and a quick ratio of 0.95, indicating a solid liquidity position [4] Upcoming Earnings - The next earnings release is scheduled for September 4, with consensus revenue estimates at $9.23 billion, reflecting a 7.3% year-over-year growth [5][6] - Adjusted EPS is expected to grow from $2.12 to $2.36 year-over-year [6] Market Sentiment - Despite 28 downward EPS revisions in the last 90 days, the company does not share the cautious sentiment of Wall Street analysts [5][7] - The slight revenue miss in Q1 was only $14 million, representing 0.15% of total revenue, which is considered insignificant [7] Insider Activity - A significant insider buy occurred when co-CEO Mason Morfit purchased 428,000 shares worth around $100 million, indicating management's confidence in the company's future [9] Operational Efficiency - The company is focusing on cost efficiency, recently laying off 300 positions while maintaining a high R&D budget [10] - Salesforce continues to roll out new features, such as the Einstein Service Agent, showcasing its commitment to innovation [11] Valuation - Salesforce's stock has underperformed, with a 3% year-to-date decline, but is considered undervalued based on historical averages [12] - The fair value of the business is estimated at around $413 billion, suggesting a 66% upside potential [15] Long-term Growth Projections - Revenue is projected to grow at a 9.7% CAGR from FY 2025 to FY 2034, with a strong focus on free cash flow generation [14][15] - Even under conservative growth scenarios, the stock remains undervalued, indicating a wide margin of safety [17] Seasonal Trends - Historical analysis suggests that the period from August to December is typically weaker for Salesforce, but current undervaluation may lead to stronger performance in the latter part of 2024 [18]