Salesforce (NYSE:CRM) has had something of a rough year in 2025, with shares down more than 25 percent YTD on concerns about growth and innovation.
Despite the market’s sudden bearishness on the stock, there’s still quite a lot to like about Salesforce as a business that could make investors want to take a second look at it while prices remain low.
Is CRM undervalued now, and is Salesforce a stock to buy on the dip while shares of other large technology businesses are soaring?
CRM’s Valuation
Even with a significant selloff under its belt, CRM is still trading at 35.3x earnings, 6.0 times sales, 3.8 times book value and 18.8 times operating cash flow.
Though certainly not outrageous for a software business of its sort, CRM’s valuation still appears to reflect at least a decent degree of bullishness on its future direction.
This bullishness, however, is even more apparent in analyst price forecasts for CRM. The consensus price target at the moment is $334.68, representing an increase of more than 37 percent from the last price of $242.76.
CRM is also trading toward the low end of its forecast range, as the lowest analyst target currently standing is $221. Furthermore, CRM carries no sell ratings, 11 hold ratings and 35 buy ratings.
How Is Salesforce Performing?
Salesforce has been a remarkably consistent performer, with a total of 83 consecutive quarters of revenue growth and 10 consecutive quarters of earnings growth under its belt at the time of this writing.
This growth continued in Q2 when Salesforce reported revenue of $10.2 billion, up 10 percent compared to the year-ago quarter. RPOs also rose to $29.4 billion, an 11 percent increase from last year. For the full year, Salesforce expects to deliver record operating cash flow of around $15 billion.
Salesforce’s guidance for this year calls for GAAP EPS in the range of $6.99 to $7.03, a slight upgrade from its trailing 12-month EPS of $6.88. On a non-GAAP basis, management expects earnings of $11.33 to $11.37.
While Salesforce may not be delivering massive earnings growth right now, the steady expansion of both revenue and cash flow bodes quite well for the business and its shareholders in the long run.
Of particular note in the Q2 earnings report is a 120 percent year-over-year increase in AI and data cloud recurring revenues. Though the recurring revenue remained a very small portion of Salesforce’s total at just $1.2 billion, the high growth rate does show that Salesforce is finally beginning to gain some traction with AI offerings.
Is the Market Overestimating Salesforce’s Risks?
Though CRM has obviously fallen out of favor with some investors recently, there’s a decent argument to be made that the market at large may be overestimating how risky the stock is. Despite competition from huge tech names like Microsoft and Adobe, Salesforce remains by far the dominant CRM software business with a market share of over 20 percent. This market share and Salesforce’s widespread use by enterprise giants give the business a respectable moat.
A slow pace of innovation has been one of the factors weighing on investors’ enthusiasm for Salesforce. While Salesforce hasn’t leaned into AI quite as aggressively as many of Wall Street’s current favorites have, the business is incorporating the technology into its already large suite of tools and, as evidenced by the Q2 reporting, starting to see some respectable results.
Importantly, there’s little evidence that one of Salesforce’s more AI-oriented competitors will suddenly gain market share at CRM’s expense, potentially making the stock less risky than the market’s selloff this year would seem to suggest.
Salesforce’s Growth Picture Going Forward
While there’s a lot to like about Salesforce, it bears noting that some of the stock’s recent problems are the result of low guidance for Q3. Management is expecting revenue in the range of $10.24 to $10.29 billion, a range that fell short of what Wall Street had hoped to see for the quarter. Even so, the range that management has provided would result in year-over-year revenue growth of between 8 and 9%.
Looking to the longer term, Salesforce could still have some fairly significant growth drivers ahead of it. While Salesforce has yet to produce the kind of growth other businesses are by embracing AI, it is steadily leaning into the technology.
Just last week, CEO Marc Benioff announced that Salesforce had cut around 4,000 customer service jobs by filling the roles with AI agents. Similar AI tools are available to Salesforce’s customers through its platform, allowing the business to deliver efficiency gains to customers while also reducing its own labor costs.
Where EPS growth is concerned, Salesforce also has the advantage of a very attractive share buyback program. In Q2, management added $20 billion to its existing buyback authorization, bringing the total to $50 billion. Given that Salesforce’s current market cap is about $231 billion, this buyback authorization represents over 20 percent of its present capitalization. In Q2 alone, Salesforce repurchased $2.2 billion worth of its own shares.
Between ongoing expansion and share buybacks, Salesforce’s EPS is expected to grow at a rate of about 17 percent annually over the coming few years. If Salesforce can achieve anything like this rate of growth, its shares could not only recover the ground they’ve lost this year but also move significantly higher.
So, Is CRM Undervalued?
Although AI has the potential to be disruptive for large software businesses like Salesforce, there’s a strong argument to be made that CRM has sold off too much on short-term pressures.
At the moment, the market seems to be somewhat ignoring both Salesforce’s long history of solid execution and its dominant position within the CRM software world. Salesforce’s massive share buyback program is also enticing, as it demonstrates a strong bias for returning cash that the business can’t immediately reinvest to its shareholders.
On the whole, CRM could be an undervalued stock to buy while the market is still assigning it a comparatively low price. Though it may take some time for Salesforce to regain its popularity among investors, the business itself seems to be performing respectably well and to have a reasonably strong competitive moat. Given these factors, CRM may be a stock to consider buying on the dip.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.