As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Salesforce Inc (CRM).
Profile
Salesforce, Inc. is an American cloud-based software company headquartered in San Francisco, California. It provides applications focused on sales, customer service, marketing automation, e-commerce, analytics, artificial intelligence, and application development. Founded by former Oracle executive Marc Benioff in March 1999, Salesforce grew quickly, making its initial public offering in 2004. As of September 2022, Salesforce is the 61st largest company in the world by market cap with a value of nearly US$153 billion. It became the world’s largest enterprise software firm in 2022. Salesforce ranked 491st on the 2023 edition of the Fortune 500, making $31.352 billion in revenues. Since 2020, Salesforce has also been a component of the Dow Jones Industrial Average.
Recent Performance
Over the past twelve months the share price is up 45.06%.
Source: Google Finance
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 2%
- WACC: 9%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2025 | 9.02 | 8.28 |
| 2026 | 10.79 | 9.08 |
| 2027 | 12.9 | 9.96 |
| 2028 | 15.44 | 10.94 |
| 2029 | 18.46 | 12.00 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 268.99 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 174.82 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 50.25 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 225.08 billion
Net Debt
Net Debt = Total Debt – Total Cash = -1.60 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 226.68 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $232.97
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $232.97 | $361.38 | -55.12% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $232.97 per share is lower than the current market price of $361.38. The Margin of Safety is -55.12%.
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3 Comments on “Salesforce Inc (CRM) DCF Valuation: Is The Stock Undervalued?”
I Owner Calla, that went quite négative in Q2 24, I didn’t like the too Big valuations at Purchase that has only gotten worse, I remember à P/E of 235, ridiculous. I invested less with the Call after seeing a Guru WS bank call them out as an AI riser.
Sold Calls a month ago at breakeven, Oof! They are very risky I belief at these ratios.
Thanks for the calculations! Could it be possible that the equity value (or net debt) is not completely correct? According to my calculations, the equity value should be 223.48 billion (EV – Net Debt). The possible adjustment would probably have no influence on the calculated overvaluation of the share…
Best regards
Severin
Hey Severin. In the case of CRM, Total Cash actually exceeds Total Debt and therefore gets added to EV. Net debt should have been displayed as -1.60 Billion. Thanks for pointing it out.