Why Salesforce Stock Could Be About To Rally 20%

Key Points

• Shares of Salesforce have been bouncing back hard after their recent dip.
• They’ve all but undone the 10% selloff, and expectations are high for the rally to continue. 
• One team of analysts expects them to rally at least another 20% back towards all-time highs. 

While it was scary at the time, the sell-off that started last month across equities is already becoming a thing of the past. Take the benchmark S&P 500 Index, for example. Sure, it had its worst run of weeks in years as it shed the better part of 10% in just three weeks, but it’s after bouncing back that much in just two. And from where it closed on Wednesday, it’s less than 1% away from hitting a new all-time high, something many thought would be off the cards for the rest of the year. 

This recovery theme is playing out across individual stocks, too. For investors with the right risk appetite and the ability to act on it, sell-offs like the one we saw this summer can open up some golden buying opportunities. But that’s not to say these opportunities have already been taken advantage of and gone. 

Salesforce Recovers 15% After Market Rebounds

Take Salesforce Inc NYSE: CRM, for example. The tech titan, known for its enterprise customer management software platform, had been having a decent summer and was up close to 25% by the end of July. This was right around the time the wheels started to come off the broader market, as a few dodgy jobs reports and volatility in the Japanese yen spooked investors.

By the end of the first week of August, Salesforce stock had lost more than 10% of its value and was in danger of giving back all its hard-won gains. But this was right around the time the broader market put in a bottom, and since the bulls stepped in and took control that day, Salesforce shares have only gone up. They’ve jumped as much as 15% in the two weeks since then, recovering all the losses and logging their highest daily close since May while they were at it.

Salesforce Stock Poised for a 20% Upside Towards All-Time High

For those of us who sat out the recovery bounce and are wondering if we missed the train, the good news is that this bullish action merely confirms that Salesforce’s upward trend is intact and back on track. Last week, the team at Bank of America shared this outlook and reiterated their Buy rating on Salesforce stock while boosting their price target to $316. Considering the company’s shares closed just above $260 on Wednesday evening, that’s pointing to an additional upside of at least 20%.

If Salesforce shares make their way back towards that level in the coming weeks, it would also put them right on the edge of their all-time high from last February. Underpinning Bank of America’s bullish outlook is what they called the company’s “strong free cash flow (FCF) and growth projections.” 

While acknowledging that Salesforce’s overall growth is set to fall from 11% to 9% next year, the business is expecting its FCF to jump 25% in the same time frame, which is arguably more attractive from a fundamental point of view. The Bank of America team also expects the ongoing investment in the company’s sales and marketing activities to fuel forward expansion beyond what is currently expected.  

Salesforce’s Recent Rally Presents a Pre-Earnings Entry Opportunity

The stock’s MACD just had a bullish crossover, supporting the optimistic outlook. This popular technical indicator strongly suggests momentum is firm with the bulls and typically comes after some initial gains and before even more. 

It’s worth noting that Salesforce will report its Q2 numbers next week, so factor this into your trade plan. Their previous report, from the end of May, was mixed. A beat on analyst expectations for EPS was overshadowed by weaker-than-expected forward guidance. 

But a lot has happened over the three months since then, and the bullish action in the stock suggests the smart money is backing Salesforce to overdeliver this time. Considering that the broader market sentiment has swung sharply back to the risk-on side, Salesforce seems to be offering a solid pre-earnings entry opportunity at these levels.