CRM software giant Salesforce (NYSE:CRM) has been vigorously buying back its own shares, using some of its existing cash flows to create value for its shareholders. This trend was strongly on display when the business released its Q2 earnings report, which included the addition of $20 billion to its buyback authorization and brought the total authorization to $50 billion.
Is CRM’s massive share buyback push a buy signal, or does it signal slower times ahead for shareholders as cash shifts from growth investments to repurchases?
Scale of the Buyback Authorization
At the time of this writing, Salesforce had a market capitalization of $238.7 billion. At this market cap, the buyback increase management announced alongside the Q2 report translates to 8.4 percent of the business’s total valuation. The total of $50 billion that Salesforce has authorized in share buybacks accounts for nearly 21 percent of its market cap.
It’s also interesting to note that Salesforce’s share buyback program is now comparable to those of much larger businesses. In September of last year, for example, Microsoft authorized a new buyback program of $60 billion. Though there is only a $10 billion difference between this and Salesforce’s current buyback authorization, Microsoft’s market cap is well over $3 trillion.
Is Salesforce Getting a Good Deal on Its Shares?
Of course, it’s important to consider the valuation of CRM shares. By overpaying for its stock, Salesforce could be making a poor investment with capital that could be better allocated elsewhere. Fortunately, CRM shares appear to be a reasonably good value at the moment.
Despite a high P/E ratio of 36.5 and a price-to-operating-cash-flow ratio of 19.4, CRM has the hallmarks of being a decent value if the business stays on a reasonably strong growth trajectory.
Indeed, it’s interesting to note that CRM shares have remained practically stagnant on a trailing 12-month basis, appreciating by less than 2 percent. This, to some extent, accounts for the fact that the current price of $250.76 is more than 30 percent below the analyst consensus price target of $334.97.
Can Salesforce Keep Growing?
Apart from the share buybacks, the stock’s valuation is still high enough to also require a decent pace of growth. A large part of the reason that shares of CRM have been so stagnant over the last year is the fact that its revenue growth has slowed considerably from what investors saw earlier in its history.
If Salesforce’s recent results are any indication, the business likely still has quite a lot of room left for gradual expansion. The Q2 earnings report showed revenue up 10% from the previous year to $10.2 billion.
For the full fiscal year of 2026, management expects to generate a record level of about $15 billion in operating cash flow. Full-year guidance also calls for revenue growth of 8.5-9 percent and a 21.2 percent GAAP operating margin.
Turning to earnings, Salesforce’s EPS is expected to keep expanding at an annualized rate of about 17 percent throughout the next 3-5 years. Though share buybacks will obviously be a major contributor to this growth rate, the business will also likely keep increasing its earnings through a combination of revenue growth and margin expansion.
It’s particularly important to keep in mind the effects that AI could have on Salesforce’s growth picture. In Q2, Salesforce’s Data Cloud and AI business segment reported recurring revenue growth of 120 percent to a total of $1.2 billion.
Though this is virtually insignificant compared to its overall annualized revenues, it does show the promise that AI could hold for driving future growth at Salesforce. In the last quarter alone, this business line brought in 60 deals valued at $1 million or more.
Overall, it does seem likely that Salesforce can keep expanding well into the future. The growth rate, however, will likely be significantly lower than what shareholders may have become accustomed to earlier in the business’s history.
In a sense, this makes now an advantageous time for Salesforce to shift its focus to share buybacks, as this may be the best use of its cash if management can’t drive appreciably higher growth rates by reinvesting in the business.
Is Now the Time to Buy CRM?
At the moment, CRM looks like a good buy even without massive growth numbers in its immediate future. Add steady, stable growth over many years to the obvious appeal of the buyback strategy and the fact that Salesforce has managed to maintain a strong balance sheet.
Long-term debt at Salesforce totals $11.8 billion, a number that is only a bit over half of its combined cash and short-term investments. As such, Salesforce is in a position for respectable growth without undue financial risks.
Another plus investors may want to consider is the fact that CRM pays a modest dividend with potential for future growth. Though the yield is currently less than 1 percent, management’s enthusiasm for returning cash through share buybacks is primed to translate to strong dividend growth over the next several years.
As such, CRM is a focus for dividend growth investors hoping to get in on the growing trend of tech firms introducing and raising their dividend payouts.
Furthermore, Salesforce retains an extremely strong moat as the dominant purveyor of CRM software. It makes up more than 20 percent of the global CRM market and has a strong presence outside of its core North American market.
This competitive moat is crucial, as investors buying on the strength of ongoing cash returns through share buybacks will likely want to be able to hold for long periods of time.
While CRM’s growth may be slowing, the large share buyback management is pursuing, in conjunction with the already impressive qualities of Salesforce as a business, could make the stock a good one to buy and hold today. Investors will likely see lower growth priced into CRM going forward, but the stock could benefit significantly from management’s use of cash to aggressively build shareholder value.
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.