“Armchair Trader Series” Recommendations
- Week Beginning -
Monday,  January 18, 2021

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Options Trade – Salesforce.com, inc. (NYSE:CRM) Calls

Thursday, January 21, 2021

** OPTION TRADE: Buy CRM MAR 19 2021 240.000 CALLS at approximately $7.40. (Max. $7.80)

 Place a pre-determined sell at $14.80.

Also include a protective stop loss of $3.00.

Software stocks with the highest percentage of subscription-based, recurring revenue stand out. They're known as software-as-a-service, or SaaS, companies. Companies continue to shift from on-premise software offerings to applications in the internet cloud. Many analysts view SaaS stocks as the best cloud stocks.

SaaS companies make up 25% of the enterprise software market currently. ARK Invest projects that SaaS revenues will grow at a 21% CAGR for the next decade, topping $780 billion, or 80% of the enterprise software market, by 2030.

The customers of SaaS companies purchase renewable subscriptions, rather than one-time software licenses. Further, customers receive automatic software updates via the web.

SaaS companies post the best revenue growth in the software sector. In addition, SaaS stocks engage in the most mergers and acquisitions. As a result, SaaS stocks trade at the highest multiples.

Salesforce.com, inc. (NYSE:CRM) pioneered SaaS. It holds the highest SaaS market cap.

The cloud-based customer relationship management (CRM) software provider salesforce.com has lost more than 20% of its value since late August, representing the perfect after-holiday bargain for growth investors.

As sales continue to shift online in a post-pandemic world, any business that has a consumer-facing presence could potentially benefit from what CRM software has to offer. Aside from just logging client information, CRM software allows businesses to stay on top of marketing campaigns, as well as log and address customer service issues. It can also be helpful in identifying new clients and client trends to boost add-on sales. In other words, CRM software isn't just for the retail or service industries any longer.

When it comes to market share dominance, salesforce.com is the best of cloud-based CRM. Gartner estimated that it controlled 18.3% of the global CRM market as of the end of 2019.

The $27.7 billion cash-and-stock deal to acquire Slack Technologies allows salesforce the opportunity to cross-sell its solutions on Slack's quickly growing, enterprise-focused platform. Following this integration, salesforce should be able to accelerate its already impressive growth rate.

Even so, salesforce.com's stock has risen nearly 20% over the past 12 months.

As well, CRM is looking at a 27% implied upside as it controls more than 18% of the global market at the end of 2019, and it boasts a forward-looking sales growth rate of around 20%.

About Salesforce.com.....

Salesforce.com pioneered the software-as-service business model under the leadership of founder and CEO Marc Benioff, who founded the company in 1999. Benioff has exhibited a talent for business since he was very young; while in high school, he sold his first app to a computer magazine for $75.

When he was 15, Benioff founded Liberty Software, a one-man company making games for Atari 800. While studying at USC, Benioff took a summer internship with Apple, working as a programmer in the Macintosh division under Steve Jobs himself. This was a profoundly inspiring experience for Benioff.

After a successful career at Oracle from 1986 to 1999, Benioff launched Salesforce.com and with it a new business paradigm for the industry. Salesforce.com's key advantage was that the software was accessed through a web browser and delivered entirely online, which was truly revolutionary at the time.

The company has delivered vigorous growth rates through both organic growth and acquisitions, and management has done a great job at expanding the addressable market and producing all kinds of opportunities for cross-selling. Financial performance has been outstanding over the long term and the company still has ambitious plans for expansion going forward.

Moving Forward.....

At its investor day presentation in December, management estimated the company would generate over $50 billion in annual revenue in fiscal 2026 -- which would represent a CAGR of 19% between fiscal 2021 and 2026.

It expects Slack (NYSE:WORK), the enterprise communication company it recently agreed to acquire in a $27.7 billion deal, to grow at a CAGR of 38% between fiscal 2022 and 2026 and generate $4 billion in annual revenue in the final year. It expects its core business, which includes its CRM platform and other cloud services, to grow at a CAGR of 17% during that period.

Salesforce's stock already looks cheaper than those of many other high-growth cloud stocks at eight times next year's sales. However, its revenue estimates for 2026 indicate the stock could easily double within the next five years while maintaining the same price-to-sales ratio.

Influencing Factors…..

In sales, Salesforce expects demand for streamlined sales teams and end-to-end solutions for pricing, billing, and order management services to continue rising. In services, it expects more businesses to use omnichannel tools like chatbots, voice, and messaging services to serve customers.

In marketing and commerce, Salesforce expects the accelerating growth of the e-commerce and fintech markets to drive demand for its services. For its main platform, it expects automation and simpler coding systems to support its long-term growth. In analytics and integration, it expects more businesses to crunch cloud-based data to make data-driven business decisions.

Salesforce's profits stabilized as its scale improved, which evened out its infrastructure expenses and reduced its costs of acquiring new customers. Salesforce expects its non-GAAP earnings to grow 55% in fiscal 2021.

Holiday Sales.....

CRM released its 2020 Holiday Shopping Report, highlighting data and trends that shaped the holiday season and will impact how consumers shop in 2021.

Salesforce data shows a 50 percent increase in digital spend over the 2019 shopping season, making it one of the biggest digital holiday shopping seasons to date. Consumers spent $1.1 trillion online worldwide and $236 billion in the U.S., compared to $723 billion worldwide and $165 billion in the U.S. in 2019.

"The 2020 holiday season was defined by the pandemic and forced retailers and brands to innovate quickly with the introduction of services like curbside pickup, virtual concierges and a focus on social, messaging and live streaming to reach shoppers in new ways," said Rob Garf, VP, Industry Strategy for Retail, Salesforce. "We expect to see these new innovations remain in 2021 with holiday strategies becoming the new standard that consumers expect from their favorite retailers and brands."

As the pandemic forced shoppers out of stores and into the world of ecommerce, Salesforce helped retailers around the world double down on digital as they navigated new challenges, including scaling their ecommerce operations. Between November 1 and December 31, 2020, Salesforce customers drove more than 204 million online orders on Commerce Cloud, while delivering fast, easy and personalized digital experiences to shoppers.

Analysts Positivity.....

CRM has been the subject of several research analyst reports.....

  • JMP Securities increased their price objective on salesforce.com from $272.00 to $282.00 and gave the stock an "outperform" rating in a research note on Wednesday, December 2nd.
  • Royal Bank of Canada set a $285.00 price target on salesforce.com and gave the stock a "buy" rating in a research note on Wednesday, December 2nd.
  • KeyCorp began coverage on salesforce.com in a research note on Monday, November 23rd. They set an "overweight" rating and a $310.00 price target for the company.
  • Finally, BMO Capital Markets raised their price target on salesforce.com from $260.00 to $285.00 and gave the stock an "outperform" rating in a research note on Wednesday, November 25th.

Two equities research analysts have rated the stock with a sell rating, seven have issued a hold rating, twenty-seven have given a buy rating and three have assigned a strong buy rating to the company's stock. The company has a consensus rating of "Buy" and a consensus price target of $260.39.

Summary…..

The global CRM market, which was valued at $40.2 billion in 2019, could continue expanding at a compound annual growth rate (CAGR) of 14.2% from 2020 to 2027, according to Grand View Research. If Salesforce matches that growth rate, its annual revenue could more than double from $21.1 billion in fiscal 2021 (which ends this month) to over $53 billion in fiscal 2028.

Salesforce expects the tailwinds that drove its growth over the past five years to continue for the foreseeable future. It will likely buy and integrate smaller companies, as it did with MuleSoft, Tableau, and Slack over the past three years, to increase its exposure to those growing markets.

CRM has a market cap of $204.45 billion, a P/E ratio of 58.34, a PEG ratio of 5.42 and a beta of 1.17. The company has a fifty day simple moving average of $222.08 and a 200 day simple moving average of $230.35. The company has a current ratio of 1.22, a quick ratio of 1.22 and a debt-to-equity ratio of 0.07. salesforce.com has a twelve month low of $115.29 and a twelve month high of $284.50.