Is Salesforce due for a correction any time soon?
Salesforce.com’s stock price climbed to new heights this week, and analysts say ‘nothing has yet to suggest of a major turn lower’.
- Salesforce closed at new high of US$281.25 on Tuesday
- Analysts see further upsides for the software stock
- Salesforce raised full-year revenue guidance by 3.5%
US software company Salesforce.com's (NYSE: CRM) stock price continues to gain this week, closing at a new high of US$281.25 a share on Tuesday (01 September 2020).
IG’s client analysis shows that ‘buys’ form 55% of all trades on Salesforce so far this week.
Meanwhile, 91% of all positions on the stock are currently ‘long’ (buy), indicating an expectation for price to increase in the future.
Salesforce share price rally: Is there an end in sight?
IG UK chief market analyst Chris Beauchamp wrote that the stock’s record prices, as impressive as they are, do pose a difficult question for investors and traders – do they take profits or hold?
‘Even worse, should new traders buy now, or wait for a pullback that may never arrive?’, he further noted.
‘With both stochastics and MACD at elevated levels, some might think the time has come for caution. Perhaps the stock will now consolidate, or perhaps it will do what textbooks say should happen, and fill the gap created last week.
‘This might see it head back towards $220, the lower bound of the gap higher. One thing is more or less certain, and that is that the chart has yet to provide any suggestion of a major turn lower’, Beauchamp wrote.
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Looking further ahead, Jefferies equities analyst Brent Thill has raised his 12-month share price target on Salesforce to US$285 while maintaining a ‘buy’ rating, citing that the company ‘can deliver more margin improvement given its scale’.
Meanwhile, Morgan Stanley gave a median price estimate of US$275, with a high target of US$335 in a blue-sky scenario.
Salesforce.com currently has an average 12-month share price target of US$266.50 per share and ‘buy’ rating from 38 analysts, based on a Bloomberg poll.
Why did the Salesforce stock spike up 30%?
The CRM (customer relationship management) solutions provider saw its share price burgeon over 30% last week, driven by two huge announcements.
First, it was revealed on Monday 24 August 2020 that the company wold be included on the Dow Jones Industrial Average starting the following Monday 31 August, making it the first cloud-based digital platform to join the index.
Four days later, the company smashed Wall Street estimates in its latest earnings as it reported a quarterly revenue of US$5 billion for the first time.
The company then raised its sales revenue outlook for the year in the earnings report by at least 3.5% to a range of US$20.7 billion to US$20.8 billion, up from US$20 billion previously.
This combination of positive developments allowed the stock to close the week at US$271.10 – well above its previous simple moving average of around US$200.
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