Salesforce被低估，尽管近期上涨，其交易价格仍低于历史中位数倍数。

Salesforce was basically patient zero of the so-called SAS apocalypse in the public markets. And that's because they are the largest pure play enterprise software company. And the narrative was that Claude is killing them.

And that's why Salesforce stock was down 58% from its all-time high in stock price. And at one point this year, it was down 40% year to date. It was actually still down nearly 20% on the year before this earnings pop.

It had Salesforce and a lot of other software companies looking like value stocks, companies that used to trade at a premium, and now they're trading at a significant discount.

However, the actual business of Salesforce was doing pretty well in that time where the stock price was down. In fact, there are all-time highs in free cash flow over the trailing 12 months, up 21% year-over-year.

Claude actually just saved Salesforce stock. They changed the narrative.

In fact, Salesforce and Enthropic are building out a partnership, a new product called Clawude Force.

But this new partnership is really starting to change the psychological picture around Salesforce stock and it's a big part of the reason why the stock has gone up so much after earnings.

That huge earnings beat that I mentioned for Salesforce in this quarter, a huge chunk of that was their investment gains from investing in Anthropic.

They took $2.61 billion of investment gains in the quarter and that was $253 of that $5.90 earnings per share. Now, don't worry, the core business was still growing as well. It just was not a 100% year-over-year story.

But if anything, this prior investment relationship and this reinforced new partnership, it really does help give some credence to the narrative shifting and Enthropic and Salesforce being more partners than potential enemies.

I'll explain why the stock may still be undervalued despite going up 25% this week and my extended thoughts on this broader Salesforce and anthropic partnership.

So, let's start with talking about Salesforce stock. It's up 25% on the week and it's up again 3% today after its huge gain post earnings.

But over the past 5 years, Salesforce stock is still down despite the actual business continually growing in that time. Now, part of it was that they were overvalued in that 2020 2021 period.

In fact, over the past 10 years, the median PE multiple on a forward-looking basis for Salesforce stock has been 42.3. And that's because it's had fast growing reliable subscription revenue.

Throughout 2022, however, you started to see a sell-off in Salesforce stock. That was partly due to a deceleration in topline revenue growth and the Fed funds rate. However, Salesforce over the next few years did come back and reach all-time highs.

But the next bare case for Salesforce stock was the advancements in AI and specifically around coding. That's really what's caused the past year and a half of decline at Salesforce stock and especially where it was down 43% year to date.

In the latest quarter, Salesforce reported record revenue at 11.35 billion, up 10.8% year-over-year. And over the trailing 12 months, they've earned 43.94 billion of revenue, up 11.2% year-over-year.

Over the past five years, their revenue is up 75%. That's a 12.63% compound annual growth rate. And that is a deceleration though from the past 10 years and especially past 20 years.

But Salesforce is the largest pure enterprise software company. They have a current market cap of $212 billion and their peak market cap is $346 billion. The interesting thing though is that the actual profits and cash flow that Salesforce has been generating has improved a lot over the past 5 years.

In the trailing 12 months, the company has generated 15.15 billion of free cash flow. That's up 21.26% year-over-year. And it's up nearly 900% in the past 10 years. That's a 26.55% keger. And it's up 175% in the past 5 years. That's a 23% keer.

And you'll notice it's not that different from their operating cash flow. That's because Salesforce is a capital light software business model. In fact, even after going up 25%, Salesforce stock is currently trading at a price to free cash flow ratio of 14 14 times annual free cash flow. That's a very low multiple.

And they have been plowing money into share repurchases at this low stock price. $35 billion over the trailing 12 months. In fact, they're so confident they've actually taken on debt in order to fund share repurchases. So, they're buying back even more stock than their free cash flow would signal.

They've also started paying a dividend in recent years. It's pretty low growth though. The most recent dividend raise was 5%. But it's a super low payout ratio. 11% free cash flow payout ratio. 21% based on net income. It's a 0.68% forward-looking dividend yield.

This $5.90 earnings per share quarter up 102% year-over-year. If you just look at on the surface, you might say, "Oh my god, they're accelerating so much." That's not what's happening really.

They made a very impressive investment in Anthropic, very forward-looking, and they had $2.61 61 billion of gains in the quarter. That attributed to $253 of earnings per share for them.

And the actual core business, the adjusted earnings per share was $3.37, which was a 16% increase year-over-year, which is pretty good. So, the actual real business of Salesforce, I think they had a pretty good quarter, but not what this 103% year-over-year would imply.

And to give more context around this Salesforce investment, in early 2023, they invested $50 million. This came from Salesforce Ventures. They invest in a lot of private companies and that stake is now valued at 5.1 billion.

$2.6 billion flowed through in this quarter. And the interesting part is that Salesforce is actually a big customer of Enthropic. And in 2026, they plan to spend $300 million in tokens.

So, these investment gains, they're kind of skewing the returns and earnings per share for Salesforce stock. But in the big picture, the consensus for the quarter is $3.27 27 and they had $3.37 excluding the investment gains. So they still beat and overall the earnings per share are growing rapidly in the long run.

But let's just get right to that partnership because Claude and AI that was the thing that was going to kill Salesforce even though they were an early investor in the company and one of the top customers and Enthropic actually runs on Salesforce which is a pretty interesting nugget from the interview.

First off, fantastic branding. I assume that Mark came up with that idea. Other things I liked about this interview, Daario is just cheesing the entire time. I think he's trying to uh improve his PR because he is smiling throughout 100% of the entire interview. It's kind of funny,

>> All right. So, Dario, I think that the combination is terrific, but I also know when I go to my Asian Force page, I I I see Open AI there. I I don't know how exclusive this is. I don't know what you get out of it. Tell me how this distinguishes you from other LLM models and why this is so exciting for you.

Well, look, our our view is that is that Claude is the best model for integrating uh complex amounts of information. We've been we've been using uh uh Salesforce and Claude within Enthropic. We're huge Salesforce customers and you know, as you can imagine, uh the pace of things at Enthropic is is is is is incredible.

Uh, and we have to both manage individual accounts and we have to answer all these incredible strategic questions that change every time a new model and a new product comes out and and we've found that this this combination product that we've built together is is the most useful thing in accelerating it.

you know, within Enthropic for a long time, we've been accelerating the research teams within Claude, but but this is the first time that we've really been able to incredibly accelerate our go to market efforts within Claude and we want that for all the other enterprises and we want to we want to me and Mark want to bring it together to everyone.

>> I actually think that was a pretty important point and I want to emphasize some things there. So the idea of it being a joint product development I think is a huge deal and the fact that Enthropic is actually a big user of Salesforce and they're basically using their models to create their dream product of what they think the integration should be and how they can use all of the advancements in frontier AI to make Salesforce and their go to market strategy even better.

So I think the idea of Enthropic basically designing the product for themselves is going to be a huge selling point for a lot of other enterprises using Salesforce.

>> Look, we see the numbers. We also see the tape underneath you. Salesforce fantastic numbers. >> We're we're not interested in destroying destroying anyone. Uh you know, we think of this as a very positive something, right? That's the way that's the way markets work. We're creating new value here. And and the question is just, you know, h it's not about destroying anyone. It's about how much of these enormous gains go to various various people and various companies.

And our philosophy always has been that we want to work with our customers. We want to empower empower our customers to share these gains with us. And so we've already worked with Salesforce in a number of ways. We're big users of Salesforce. Salesforce is big users of Clawed Code, of Co-work, of other tools.

We've put products like Claude Tag in Slack already. Um, which is which is a part of Salesforce. And now this combination is a way to to gain something that's, you know, it's 1 plus 1 equals three, something that's bigger than the sum of its parts. and and and I think that's the right way to think about things.

>> I think that was actually a pretty good answer as well. Not only is Salesforce an investor in Enthropic, they're also one of their largest customers and they own valuable enterprise real estate and customer relationships.

A huge percentage of the Fortune 500 runs on Salesforce. Enthropic is an enterprise focused AI company. Salesforce is spending $300 million a year on Enthropic. Dario wants to see that go to a billion dollars a year, 2 billion, three billion. So this has the potential to be a big win-win for both parties.

So Salesforce has been an early adopter in adding their products into Claude. They also built out MCP so you can access all of their data via AI.

But the relationship is vice versa. They're now branding products as Claude related within Salesforce's product ecosystem.

Cloud Force I think is going to be the new flagship. Claude Tag they brought into Slack. It's related to Slackbot that product.

And it seems like Enthropic wants a tighter relationship with companies like Salesforce so that they run Enthropic models rather than have a bunch of various open models available.

And I think this actually has a very good case to be a big hit in the marketplace. For one, the case study that they can build this all around. You can say this is Claw Force, the fastest growing tech company in history, Enthropic. They run on Salesforce and this is the exact same product and go to market strategy system that they use.

And yes, fastest growing. This year they've gone from $9 billion to $65 billion in revenue run rate. That's 7x in 8 months. So they're growing well ahead of 10x a year. And right now it seems like next year they'll be in the hundreds of billions of dollars of revenue.

So if I was sitting at Salesforce and I was trying to sell this product, you have a great case study here. And then combining the branding with clawed force, I think makes it even easier to sell.

So, in the enterprise spend world going on right now, a lot of the money is flowing through to Claude. So, what is Salesforce going to start selling? They're basically just going to start selling their version of Claude. And if they can use the exact same branding, I think that will help them sell more.

So, I wouldn't be surprised if from Salesforce's side, this is a big growth driver for them. Also, strategically in that SAS apocalypse space, I think this is a huge thing that we're talking about.

Enthropic, they're going to route through companies like Salesforce to get access to more large enterprises.

Even though it's hard to imagine with all the growth at Enthropic, Salesforce still has a larger customer base than Enthropic, especially when it comes to the large established enterprises, they have all these pre-existing customer relationships.

This secures more token demand going through Enthropics models. And I think this is a pretty good win-win deal, especially as Enthropic is planning to have an IPO very soon.

I think this tightens down their enterprise case even more. And on the side of Salesforce, I think this really starts to eliminate a lot of that SAS apocalypse narrative.

It does not seem like Salesforce is going exclusive on clawed models. Perhaps this new Clawed Force product would be exclusive. It's unknown.

It might also be a branding and product development partnership. That will be interesting to see even if it's just purely branding. I think it's genius branding. I mean, you can tell by the stock price going up that much.

And then related to Salesforce's side, this does answer the question of Enthropic themselves not trying to kill Salesforce, but the technology shift in general still could cause some problems for companies like Salesforce and how this all evolves with AI agents as well.

Are they going to be on a per seat basis or is it going to be usage based? That said, some of Salesforce's AI specific products have been growing very well. You have Agent Force, that's up 240% year-over-year, and it's now at $ 1.5 billion ARR. This is basically a automated customer support product.

And their data 360 business has seen a big jump also due to AI demand. That's now $3.9 billion of ARR, up 210% year-over-year when you combine that with Agent Force.

And now you have Claude Force, you have Slackbot in Slack, you have Claude Tag in Slack, you have a new product, Slack Code, which I assume is probably a complete copy of Claude Code.

So there is no doubt that there's a ton of change in their business related to AI. And they will have to continue adapting in order to survive in the modern marketplace. But although it's easier to create the software itself, it's not as easy to actually build a business. And Salesforce has a huge existing customer base, they have existing sales motion and relationships with all these Fortune 500 companies.

So although a couple guys on a weekend might be able to build a crafty version of a CRM, and heck, if they spend a few months on it, they could probably build a pretty good CRM as well, probably much better than Salesforce's. But that doesn't mean they can actually grow that into being a successful business and take down a company like Salesforce.

And I think Salesforce stock is actually still looking cheap. So we're going to be taking a look at the value graph tool which shows historic multiples that Salesforce has traded at.

I'm actually not going to look at that cuz that has the inflated entropic gains. We'll look at the forward-looking earnings per share, which is using the analyst estimates for earnings per share. Over the past 5 years, the median multiple has been 26.31. The current forward-looking PE ratio is 18.3.

So, even after going up a ton, the stock is still 30% below the implied fair value. And if the company were to return to trading at the 26.31 forward-looking PE ratio, then that would give an implied fair value of $37,248. That's 43.7% upside from here.

Now, if we look at free cash flow for Salesforce stock, it also looks like it's a deep value right now. As I mentioned, it's currently at a 14.02 price to free cash flow multiple. The median over the past 5 years is 26.47.

So, even after going up, it's still trading well below fair value. The implied fair value is $489. That's 88% upside to the fair value price.

And as we look at the big picture here, you can see in that 2021 time period that I was talking about earlier, the stock was looking pretty overvalued. It was trading at a very high multiple and at that peak price at the start of 2025.

But the troubling thing here with Salesforce stock and a lot of software stocks right now is that they've looked really cheap for a while now.

Now, that could be the opportunity for the long-term investor and the stock still looks pretty cheap right now. But just because a stock is trading below fair value in a significant discount, it doesn't mean that's going to turn around right away. It can take time and Salesforce might have just had its narrative shift up moment.

That could mean the stock is going to do pretty well from here one to two to 3 to four to 5 years from now. And finally, I want to look at this revenue version of the value graph because software stocks, especially when they're private and you know, it's a VC funded thing back in the day, they always look at revenue multiples.

Investing in public companies, I like to look at free cash flow generation, but sometimes with unprofitable early stage companies, you can't really look at that. So, I think on an all-time view, revenue might be actually the best metric to look at for Salesforce because you can look back then to that 2007 all the way through now to today.

You can see it's currently trading at 4.8 eight price to sales ratio and the median alltime for Salesforce is 7.9. So the company is trading well below that median all-time ratio right now.

And you can see in 2018, 2019, 2020, 2021, it was overvalued on a price to sales ratio and it was trading a significant discount in 2022. The stock looked like a steal back then.

The stock has looked like it's trading at a deep value. It was basically being priced as though Salesforce stock was going to start growing at like 2 to 3%. And before I wrap it up, I want to take a look at the current Wall Street price targets for Salesforce after this latest earnings report.

And then I'll give a price projection of Salesforce for the coming year, the year after that, all the way through 2031. And then you can get an idea of what kind of returns you could expect from Salesforce from here.

All right, so let's look at the latest price targets that have come out post earnings. So, we had one neutral rating come at $200 a share. We had one bull rating at $275. This is a 12-month price target, by the way, so what you expect the stock to be one year from now.

So, we had a $275 price target. They posted that when the stock price was 205. And then we have a $266 price target that was posted when the stock was $249. So, after it had that big jump. And for context, the stock price is now $258.

So, now let's do this price projection. This is going to be based on the analyst estimates for adjusted earnings per share in the coming years. You can see they're expecting double digit earnings per share growth pretty much every single year. 20% 10 15 9 27.

So we're going to be taking those and assigning a PE multiple that we think the stock will trade at at that time. So if we take today's forward-looking PE of 18.5 and we project that out going forward, then that would imply that by fiscal year 2031, they're already in their fiscal year 2027 by the way. That would imply a projected price of $465.83 because we're taking this 25.18 time 18.5 and that's 78% upside from here.

But if we look at this median 5-year multiple of 26.31 and let's say we push this target PE to 26.31, then that would give us a fiscal year 2031 price target of $662.

Again, you're assuming that by the time you get to 2031, the stock's trading at 26p multiple. That would imply 153% upside from here, 23.4% annualized. And if that happens, that would be a market beating return, even post 25% in a week Salesforce stock pop.

So, that's my updated analysis on Salesforce stock. I've been following this company for a while. I've had it on my watch list. I did own it in the past and I've talked about it in quite a few videos over the past quarter that I thought it was a pretty good discount right now, but I personally don't own any Salesforce stock right now and you should definitely do your own research before making any investing decisions.