Salesforce (CRM) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Shares of this customer-management software developer have returned -0.7% over the past month versus the Zacks S&P 500 composite’s -0.2% change. The Zacks Internet – Software industry, to which Salesforce belongs, has gained 0.5% over this period. Now the key question is: Where could the stock be headed in the near term?
Although media reports or rumors about a significant change in a company’s business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company’s earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors’ interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Salesforce is expected to post earnings of $3.27 per share for the current quarter, representing a year-over-year change of +12.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
The consensus earnings estimate of $14.12 for the current fiscal year indicates a year-over-year change of +12.8%. This estimate has changed +6% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $15.49 indicates a change of +9.7% from what Salesforce is expected to report a year ago. Over the past month, the estimate has changed +5.4%.
With an impressive externally audited track record, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Salesforce.
