• Wondering whether Salesforce at around US$171 per share is starting to look interesting again, or if the stock still carries too much downside risk for your portfolio.
• The share price has been under pressure recently, with returns of a 6.4% decline over 7 days, an 11.2% decline over 30 days, a 32.5% decline year to date, and a 32.3% decline over the last year, which can change how the market views both its potential and its risks.
• These moves sit against a backdrop where Salesforce continues to feature heavily in discussions about large software names and their role in enterprise technology, keeping the stock firmly on many investors' watchlists. Broader commentary around software valuations and large cap tech has also kept attention on how much investors are willing to pay for companies like Salesforce.
• On Simply Wall St's 6 point valuation checklist, Salesforce currently scores a 5, suggesting it screens as undervalued on most measures. The rest of this article will break down those methods before finishing with a way to look at value that goes beyond any single model.

Approach 1: Salesforce Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model looks at the cash Salesforce is expected to generate in the future, then discounts those cash flows back to today to estimate what the business might be worth now.

For Salesforce, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $14.3b. Analyst estimates and Simply Wall St extrapolations point to projected free cash flow of around $19.8b in 2031, with a series of annual projections in between that are discounted back to today's value.

Pulling these projections together, the DCF model arrives at an estimated intrinsic value of about $308.71 per share. Compared with the current share price of around $171, this implies a discount of roughly 44.5%. On this basis, the model indicates that the shares screen as undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Salesforce is undervalued by 44.5%. Track this in your watchlist or portfolio, or discover 57 more high quality undervalued stocks.

Approach 2: Salesforce Price vs Earnings

For a profitable company, the P/E ratio is a useful way to connect what you pay per share with the earnings the business is currently generating. It gives you a quick sense of how many dollars of price you are paying for each dollar of earnings.

What counts as a "normal" or "fair" P/E depends on how the market views a company's growth potential and risk. Higher expected growth and lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower P/E.

Salesforce currently trades on a P/E of about 21.2x. That sits below the Software industry average of roughly 28.1x and below the peer group average of about 37.9x. Simply Wall St also calculates a proprietary “Fair Ratio” for Salesforce of 33.1x, which reflects factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio aims to be more tailored than a simple comparison with peers or the broad industry because it adjusts for Salesforce's own characteristics rather than assuming it should trade like the average software company. Setting the current P/E of 21.2x against the Fair Ratio of 33.1x suggests that the shares appear undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Salesforce Narrative

Earlier the article mentioned that there is an even better way to think about valuation, and on Simply Wall St that means using Narratives. Narratives let you attach a clear story about Salesforce to your own numbers by linking what you believe about its business, future revenue, earnings and margins to a financial forecast, a Fair Value, and a simple comparison with the current share price. All of this is available within an accessible tool on the Community page that updates automatically when new results or news arrive. This allows you to see, for example, how one Salesforce Narrative might assume a Fair Value around US$190 with revenue of US$52.5b and profit of US$9.7b in 2029, while another assumes a Fair Value near US$435 with revenue of US$56.2b and profit of US$12.0b in 2028. These provide two very different stories to weigh against today’s US$171 share price.

Do you think there's more to the story for Salesforce? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.