Should you buy Salesforce shares after issuing disappointing FQ4 guidance?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Nov 30, 2021
  • Salesforce.com shares on Tuesday declined by 3.97%.
  • The stock plunged by more than 6% in the after-hours session after announcing its FQ3 results.
  • The company beat expectations on revenue and earnings but issued weak FQ4 guidance.

On Tuesday, Salesforce.com Inc. (NYSE:CRM) shares declined by nearly 4% ahead of its FQ3 results. The stock sank further by more than 6% despite beating analyst expectations on revenue and earnings. Investors seem to have put more emphasis on its underwhelming FQ4 guidance.

Salesforce posted FQ3 non-GAAP earnings per share of $1.27, smashing the average for analyst expectation of $0.92. In addition, its GAAP EPS of $0.47 outperformed the consensus Street expectation of -$0.03, while revenue for the quarter grew by 26.6% from the same quarter in 2020 to $6.86 billion, surpassing expectations by $60 million.

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However, the company said it expects FQ4 revenue in the range of $7.22 billion to $7.23 billion, which fell below the Street forecast of $7.4 billion. Its EPS forecast of $0.72-$0.73, was also substantially below the average analyst estimate of $0.82.

Is Salesforce too risky to buy?

From a valuation perspective, Salesforce shares trade at extremely steep valuation multiples of 113.03 P/E and 61.29 forward P/E, thus making it less attractive to value investors.

In addition, analysts expect its EPS to grow at an average annual rate of 10.73% over the next five years, compared to an average of 129.30% in the previous five.

Therefore, growth investors could also opt for alternatives in the market.

Source – TradingView

Technically, Salesforce shares seem to be trading within a descending channel formation in the intraday chart. As a result, the stock has pulled back towards the oversold conditions of the 14-day RSI.

However, given the current bearish bias, it could decline further towards $270.81, or lower to $256.94, while $296.87 and $310.79 are crucial resistance zones.

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