Salesforce.com Inc. (NYSE:CRM) said it is issuing a senior note to finance the Slack acquisition. The company bought Slack Technologies for $27.7 billion in December last year. The purchase has failed to boost the stock price, with some analysts calling it non-disruptive.
CRM stock is down approximately 5% since news about the deal emerged in late November. The stock continues to trade in a choppy pattern formation, rising just over 10% this year.
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Salesforce’s acquisition of Slack Technologies will yield valuable synergies once it integrates the corporate communications company into the business. However, short-term headwinds start with debt financing the company seeks to use to finalise the deal.
From a valuation perspective, CRM shares look slightly overvalued at the current trailing P/E ratio of 50.90. The forward P/E ratio of 56.61 suggests little expectation of earnings growth over the next 12 months.
Analysts expect EPS to decline by 22.60% this year before increasing 13.36% next year. As such, the earnings growth prospects are not exciting in the short term. However, the company’s bottom line has a projected average annual growth of about 10% for each of the next five years. Therefore, the long-term outlook seems compelling for growth investors.
Technical overview: current rally seems poised to continue
Salesforce shares are on a 16% bull run that started on 16th May. Based on the current momentum, it looks likely to continue to the foreseeable future. However, there could be minor pullbacks along the way.
Investors looking to ride the current rally can target short-term profits at approximately $252.46 or $266.84 long term. The immediate support level is $235.28 or $221.21 in case of a significant plunge in the CRM stock price.
Bottom line: ride the bull run while it lasts
Although Salesforce shares seem long overdue for a significant pullback, the current bull run looks strong to continue to the foreseeable future. However, with potential headwinds on the horizon amid the Slack integration, it may not be long before we see a massive pullback.
Therefore, investors can target the current rally, but with caution. Long-term buyers looking to ignore the short-term headwinds can continue to add to their positions.
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