Salesforce: from growth story to margin story
Revenue growth has slowed to single digits, and the market has punished the stock for it. What it has not fully credited is the margin expansion that came with the slowdown. Free cash flow per share is growing faster than it did in the high-growth years.
Sample research report used to test the layout. Delete before launch.
Thesis
A software company that stopped chasing growth and started harvesting it. Operating margin has roughly doubled in three years and buybacks are shrinking the share count. The stock is priced like growth is over; I think cash flow is what matters now.
Catalysts
- Margin guidance for next year.
- Adoption numbers for the new agent products, which are priced per use rather than per seat.
Risks
- Seat-based pricing eroding as customers automate work.
- Another large acquisition, which would undo the margin discipline.
What would prove me wrong
Revenue growth falling to zero. Margin expansion only works if there is something to expand on.
Position
Full position, held since spring.