Why Salesforce Stock Is Down By 7% Today

Salesforce Stock Drops As Guidance Disappoints

Shares of Salesforce gained downside momentum after the company released its third-quarter results. The company reported revenue of $6.86 billion and adjusted earnings of $1.27 per share, beating analyst estimates on both earnings and revenue.

The company stated that demand remained strong, providing support to its financial performance. It also added that Slack, which was acquired by Salesforce this summer, has also delivered a strong quarter.

While the results were good, traders sold the stock as the fourth-quarter outlook disappointed. In the fourth quarter, Salesforce expects to report revenue of $7.22 billion – $7.23 billion and adjusted earnings of $0.72 – $0.73 per share.

What’s Next For Salesforce Stock?

The stock made an attempt to settle above $310 in early November but lost momentum ahead of the earnings report and dived on disappointing outlook.

This is not surprising as the company is richly valued by the market. Analysts expect that Salesforce will report earnings of $4.42 per share in the current year and earnings of $4.66 per share in the next year, so the stock is trading at 57 forward P/E even after the recent pullback.

At such valuation levels, the market is sensitive to any changes in guidance since the stock trades on expectations of spectacular growth. When a company does not meet market’s expectations, its stock is punished.

It should be noted that the stock is up by about 20% year-to-date, so it does not look overheated. In addition, RSI is very close to the oversold territory so speculative traders will likely take a closer look at Salesforce stock in the upcoming trading sessions.

While the stock is not attractively valued by traditional valuation metrics, the market has shown its preference for growth plays this year, so Salesforce stock may soon find its buyers in case the market’s risk appetite remains strong.

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