When a stock falls after earnings, it can sometimes make for a good buying opportunity. In other cases, however, it may just be the case that a sell-off was overdue given a stock’s hefty valuation.
Last week, shares of Salesforce (NYSE:CRM) crashed after earnings, hitting their lowest levels thus far in 2024. On a year-to-date basis, the stock has now lost more than 15% of its value as the company missed analyst expectations for the first time since 2006.
It wasn’t a huge miss, however. Salesforce’s adjusted earnings per share of $2.44 was actually better than expectations of $2.38. But it was on the top line where there was a bit of a miss as the company’s revenue totaled $9.13 billion and was shy of the $9.17 billion analysts were expecting.
Investors may have been expecting more from the company given its launch of artificial intelligence features, and for it to perhaps get more of a boost from its Einstein Copilot assistant. The problem is that Salesforce isn’t normally a cheap stock to own. Even now, with the sell-off taking place, it’s still trading at close to 40 times its trailing earnings. At that kind of a multiple, investors often expect much stronger growth and a better long-term outlook.
While Salesforce stock is down, it’s not a screaming buy. The economy isn’t looking that great and companies may scale back on marketing spend in the future. And without better growth prospects to help justify its valuation, it could be a challenging road ahead for the stock – investors may be better off avoiding Salesforce for now.
