Shares of Salesforce Inc. have experienced an impressive growth of 85% in the past year, and according to analyst Keith Weiss from Morgan Stanley, there is still plenty of potential for further gains. In fact, Weiss has designated Salesforce as his top pick, highlighting the possibility of a 25% upside.
Weiss noted that last year’s surge in stock value was primarily driven by an increase in Salesforce’s profitability rather than multiple expansion. However, this year could be different as investors may adopt a more optimistic outlook regarding the company’s long-term revenue growth potential and its influence in the realm of artificial intelligence.
With these factors in mind, Weiss believes there is a clear path for a shift in Wall Street sentiment towards Salesforce, leading to a multiple that better aligns with its peers on a growth-adjusted basis. He pointed out that Salesforce shares currently trade at a significant 57% discount compared to Microsoft Corp., Adobe Inc., and Intuit Inc. on this basis. While these three companies experienced notable stock rallies last year, their gains were predominantly driven by multiple expansion.
Furthermore, despite forward earnings estimates for Salesforce increasing by almost two-thirds over the past year, the stock’s forward price-to-earnings multiple has only seen a modest double-digit increase during the same period.
Weiss emphasized that the recent improvement in Salesforce’s company fundamentals has played a significant role in its stock performance rather than mere ‘animal spirits’ driving speculative investment. Consequently, he maintains his outperform rating on the stock and has set a target price of $350.