Is Salesforce’s Stock Overvalued or Undervalued?

People pass by the Salesforce Tower and Salesforce.com offices in New York City, N.Y., on March 7, 2019. Brendan McDermid/Reuters

Salesforce.com, inc. shares have lagged the S&P 500 in 2021, generating a year-to-date total return of just 13 percent.

Salesforce stock has had a wild ride in recent years, but investors may be wondering whether there’s any value in Salesforce shares after the recent pullback.

Earnings

A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 29.4, nearly double its long-term average of 15.9. Salesforce’s PE is 99.7, more than three times higher than the S&P 500 average as a whole.

Growth

Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.8. Salesforce’s forward earnings multiple of 54.0 is still more than 150 percent higher than the S&P 500’s, making Salesforce look overvalued.

By Wayne Duggan

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