• This article explores whether Salesforce, trading at around US$199 per share, may represent a bargain or a fair price for long term investors by examining what the current market valuation might imply.
• The stock has seen mixed returns, with a 1% decline over the last 7 days, a 3% gain over the last 30 days, and year to date and 1 year returns of 21.4% and 26.2% declines respectively, while the 3 year and 5 year returns sit at 7.7% and a 3.7% decline.
• Recent coverage around Salesforce has focused on how the company is positioning its platform within broader enterprise software spending, including product updates and partnerships that aim to keep existing customers engaged and attract new ones. At the same time, analysts and commentators have been debating whether the current share price fully reflects these efforts or if expectations have cooled compared to prior years.
• Our model gives Salesforce a valuation score of 5 out of 6, which suggests it screens as undervalued on most of the checks we run. Next, we walk through the main valuation approaches behind that view and then provide a framework that can help you think about value even more clearly.

Approach 1: Salesforce Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future cash flows and discounting them back to a present value. It is essentially asking what those future dollars are worth in your pocket right now.

For Salesforce, the model starts with last twelve months free cash flow of about $14.27b and then uses a 2 Stage Free Cash Flow to Equity approach that relies on analyst forecasts for the next few years, with later years extrapolated. By 2035, the projection used in this model reaches free cash flow of around $19.67b, expressed in today’s dollars as a lower amount because of discounting.

When all those discounted cash flows are added together, the DCF model arrives at an estimated intrinsic value of roughly $305.33 per share. Compared with the current share price of around $199, this implies an intrinsic discount of 34.7%, which indicates that Salesforce appears undervalued based on this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Salesforce is undervalued by 34.7%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

Approach 2: Salesforce Price vs Earnings

For a profitable business like Salesforce, the P/E ratio is a useful way to relate what you pay for each share to the earnings that the company is already generating. Investors usually accept a higher P/E if they expect stronger growth or see the business as lower risk, and look for a lower P/E when growth is more modest or risks are higher.

Salesforce currently trades on a P/E of around 24.7x. That sits below the Software industry average of about 26.8x and the peer group average of roughly 40.0x. This suggests the market is paying less for each dollar of Salesforce’s earnings compared with many other software names.

Simply Wall St’s Fair Ratio for Salesforce is 34.9x. This is a proprietary estimate of what a more tailored P/E might look like after accounting for factors such as earnings growth, profit margins, industry, market cap and specific risks. Because it adjusts for these company characteristics, the Fair Ratio can give you a more customised reference point than a simple comparison with broad industry or peer averages. With the Fair Ratio above the current 24.7x P/E, this framework points to Salesforce trading below that customised reference level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Salesforce Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These let you tell a clear story about Salesforce, link that story to a set of revenue, earnings and margin forecasts, and then see the Fair Value that falls out of those assumptions.

On Simply Wall St, Narratives live in the Community page and are already used by millions of investors as an easy way to connect a company’s story with the numbers. Instead of just accepting a single DCF or P/E output, you can see how a particular view on Agentforce, AI adoption, margins or regulation flows through to a forecast and then to a Fair Value that you can compare with today’s price.

Because Narratives recalculate automatically when new earnings, news or guidance are added, they stay current and help you decide whether Salesforce looks attractive or fully priced under your own assumptions. You can see this clearly when you compare, for example, a cautious Narrative that assigns a Fair Value of about US$190 per share with more optimistic Narratives that sit closer to US$435, each reflecting a different view on Salesforce’s prospects and appropriate future P/E multiple.

For Salesforce, we will make it straightforward for you by providing previews of two leading Salesforce Narratives:

First is a bullish Narrative that focuses on Salesforce’s enterprise strength, cash generation and AI initiatives. The second is a more cautious Narrative that applies lower growth and margin assumptions along with tighter valuation multiples. Reviewing both side by side can help you determine which perspective is closer to your own view.

Fair value: US$223.99 per share

Implied discount to this fair value: about 10.9% below the narrative estimate

Revenue growth used in this Narrative: 13%

• Views Salesforce as consolidating its role with large enterprise customers, with an opportunity to increase market share toward 20% while using its cloud and AI tools to keep the value proposition compelling.
• Assumes efficiency gains have largely been secured, which could make more excess cash available for shareholders through buybacks, while still supporting product development and selective acquisitions.
• Positions AI and Agentforce as a potential way to reinforce Salesforce’s moat by training on customer data, while still highlighting risks from concentrated high value customers, niche competitors and acquisition spending that could weigh on free cash flow if not managed carefully.

Fair value: US$190.00 per share

Implied premium to this fair value: about 4.9% above the narrative estimate

Revenue growth used in this Narrative: 7.87%

• Applies a more restrained view on growth, with lower long term revenue and margin assumptions and a reduced future P/E multiple, reflecting concerns about a maturing core CRM market and higher compliance and operating costs.
• Emphasizes risks from tighter data privacy rules, data localization, new AI first and industry specific rivals, and a heavier reliance on acquisitions that could affect earnings quality and free cash flow.
• Still notes that AI products such as Agentforce, Data Cloud usage and broad product adoption across customer segments can support resilience, but suggests that recent analyst target cuts and sector wide multiple compression leave less room for error at current prices.

If you want to read these stories in full and see how the numbers link back to assumptions, you can use the Bull and Bear Narratives as a starting point. From there, you can adjust the growth, margins and multiples until they align with how you view Salesforce.

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.