Blue-chip corporation, Salesforce, boasts an alluring market value.
In the tech-savvy world of Customer Relationship Management (CRM), Salesforce (NYSE:CRM) has been making headlines with its recent moves. The company's Q1 2026 earnings and the acquisition of Informatica for $8B have sparked a flurry of discussions among investors.
Salesforce's Q1 earnings report, released on 05/28/2026, showed a revenue of $9.8B, an 8% year-over-year increase, and non-GAAP earnings per share of $2.58. However, these figures represent a significant deceleration from the company's prior years of consistent double-digit growth. The revenue growth of 7.7% year-over-year and non-GAAP EPS growth of 5.7% have raised concerns among investors, contributing to a 28% decline in the company's stock price year-to-date in 2025.
Despite the slowing sales growth, Salesforce continues to generate impressive cash flow. The company's trailing-twelve-months free cash flow margin has been 30%, and it was over 60% in the most recent quarter. Salesforce had $10.9B in cash and $8.4B in debt in the most recent quarter.
The company's recent acquisition of Informatica is expected to contribute to Salesforce's revenue and profits. However, investors should focus on the speed and success of its integration, with more details likely to be discussed during the next earnings call. The combination of Data Cloud + AI was already generating over $1B in Annualized Recurring Revenue (ARR), and the Agentic AI solution is already providing $0.1B in ARR. Salesforce has also introduced Agentforce 3, a product leveraging Artificial Intelligence.
Despite the market's cautious view, Salesforce is trading at a cheaper valuation compared to other companies within the CRM market, including Monday, Oracle, and Microsoft. The company's non-GAAP Operating Margin for Q1 2026 was 32.3%, and GAAP Operating Margin was 19.8%. Salesforce is currently trading at an earnings yield and FCF yield of 5.2% and 5.7%, respectively, which are among the cheapest in its history.
However, there is a risk that the company's top and bottom line could be affected if economic conditions change and spending in CRM software is cut. Another risk to consider is that if the AI thesis proves to be wrong, the company might trade at a lower valuation and grow slower than anticipated.
On a brighter note, the revenue stream and free cash flows of Salesforce are predictable. Agentforce has reached more than 4000 paid deals since its launch, with 800 customers already in production. The company's stock is trading near a weak support level, but it could still trade lower to a support level between $200 and $220.
Recent analyst ratings have been upgraded. DA Davidson upgraded Salesforce to Neutral from Underperform with a price target of $225. The average target is around $352.
In conclusion, Salesforce’s slowing revenue growth despite strong cash flow metrics explains the market’s cautious view and the stock’s underperformance. However, the company's AI-related initiatives, such as Agentforce, and the acquisition of Informatica offer potential for growth and increased profitability in the future. Investors should pay close attention to management commentary regarding the acquisition and synergies in the September earnings call.
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