Salesforce.com Inc.’s (CRM) stock had a strong finish to 2019, and it has continued into 2020. The shares have steadily outperformed the S&P 500 over the past two months, rising by approximately 28% in comparison to the S&P 500’s gain of about 10%.
Hedge funds were actively buying the stock in the third quarter ahead of the company’s strong performance, which also resulted in the equity being added to the WhaleWisdom Heatmap, ahead of the company’s better than expected fiscal third quarter results and analysts boosting their outlooks.
Salesforce’s third quarter subscription and support revenue were up 34% to $4.24 billion, with professional services revenue up 22% to $274 million. Fiscal third quarter earnings of $0.75 beat forecasts by $0.09, while revenue of $4.5 billion beat estimates by $60 million. For the fiscal year 2020, the company maintained its revenue guidance of $16.9 billion to $17 billion and increased its earnings guidance to a range of $2.89 to $2.90 per share.
Hedge Funds Are Active
Hedge funds were buying the shares in the third quarter, helping it to land on the WhaleWisdom Heatmap with a ranking of 21. During the quarter, the aggregate 13F shares held by hedge funds increased to 65.9 million from 41.5 million, an increase of almost 59%. While not quite as eye-popping as the hedge fund increase, overall institutions increased their aggregate holdings by nearly 10%, to 708.4 million from 646.5 million. Overall, 46 hedge funds created new positions, 69 added to an existing holding, 15 sold out, and 37 reduced their shares.
Analysts Provide Positive Outlooks
RBC Capital Markets upgraded Salesforce to a Top Pick from Outperform and raised its price target to $215 from $200. Cowen, Inc. views Salesforce as having a highly attractive valuation, with the company’s software creating a strong position in the technology sector. Cowen maintains an Outperform rating and a $195 price target. Additionally, Jeffries Group LLC raised its price target on the stock from $195 to $210.
Currently, analysts’ consensus estimates forecast Salesforce to grow earnings by 25.7% and revenue to rise by 19.4% from 2021 to 2022. It means that Salesforce’s stock isn’t cheap, trading with a one-year forward PE ratio of 59. But when adjusting for growth, it may prove to be a bit rich for some investors. However, should the company continue to deliver strong results, there is potential for the stock to go on to rise and for shareholders to be rewarded.