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Salesforce stock has rebounded in recent weeks after a challenging start to the year, and valuation tools now suggest the market price may sit well below an intrinsic value estimate based on a Discounted Cash Flow (DCF) model.
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Year to date, Salesforce shares are down 27.4%, which means the recent bounce has not yet erased the earlier decline.
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The recent US$1.6b contract with the Department of Veterans Affairs can support long term cash flow expectations, while competitive pressure on Slack from new platforms such as Buzz may weigh on those same expectations.
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On Simply Wall St’s checks, Salesforce screens as undervalued in <a href="https://www.simplywall.st/stocks/us/software/nyse-crm/salesforce/valuation” rel=”nofollow noopener” target=”_blank”>5 of 6 valuation measures. This points to a share price that leans cheap across several methods.
The issue now is whether Salesforce’s current share price still offers a meaningful discount to its intrinsic value estimate or whether the recent gains have already captured most of that gap.
Find out why Salesforce’s -26.0% return over the last year is lagging behind its peers.
Is Salesforce a Bargain on Cash Flow?
The Discounted Cash Flow (DCF) model estimates what Salesforce could be worth based on its future cash generation. Salesforce has latest twelve month free cash flow of about US$14.5b, and the model assumes those cash flows continue growing rather than shrinking.
On that basis, the DCF points to an intrinsic value of about $362 per share. Compared with the current market price, that implies the stock trades at roughly a 49.1% discount on this cash flow view. The recent US$1.6b Veterans Affairs contract is a concrete data point that helps explain why projected cash flows stay robust in the model, even as new competition for Slack adds uncertainty around collaboration products.
Overall, the DCF work suggests Salesforce stock appears undervalued relative to the cash flows that are currently built into this model.
Our Discounted Cash Flow (DCF) analysis suggests Salesforce is undervalued by 49.1%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.
Is Salesforce Still Cheap on Earnings?
The P/E ratio is a useful way to compare what you pay today for each dollar of Salesforce earnings versus similar software stocks. Salesforce currently trades on a P/E of about 18.8x, which sits below the broader Software industry average of roughly 28.8x and the peer group average near 33.6x.
