Salesforce Inc (CRM)

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Salesforce Falls Out of Favor: Trade the Bear Put Spread Options Strategy
By: Tony Zhang | May 14, 2024

• Salesforce stock will likely trade within the $210 to $220 area.
• A bear put spread is a strategy to consider if you want to take advantage of the stock trading between $210 and $220.
• With CRM's earnings about three weeks away, a bear put spread could lower your cost of a bearish exposure.

Once a darling of the tech industry, Salesforce (CRM) had fallen out of favor until recently, when it hit a new all-time high earlier this year. Since then, though, investors have continued to shy away from this cloud computing stock as they focus on more pure AI-related companies, and Salesforce is at risk of turning lower again. As CRM matures and growth rates moderate, it simply cannot continue to command the industry-leading valuations it once did, and has to face the reality of its fundamentals.

Analyzing Salesforce

If you look at a five-year chart of CRM, you will see that the stock has traded within a significantly wide range of $130 to $310. Earlier this year, it revisited the upper bound of the range and attempted to break out higher to a new all-time high (see chart below). This quickly failed, and the stock reversed back into the range, with momentum recently turning negative. This suggests that CRM will likely continue to trade back towards the midpoint of the range, i.e., in the $210–220 area.



CHART 1. DAILY CHART OF SALESFORCE (CRM) STOCK. CRM's stock price tested a resistance level and turned lower. Momentum is also negative, which means the stock is likely to move lower.
Chart source: StockCharts.com. For educational purposes.

CRM currently trades at over 28x forward earnings, which flies in the face of growth rates that have moderated significantly over the past 12 months. After averaging EPS growth of over 45% over the past three years, future EPS growth is expected to slow to just a third of that at 16%. Revenue growth is expected to drop to under 10%. This makes a valuation that is 40% higher than the S&P 500 harder to justify when growth rates are slowing down significantly...

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