What happened
Shares of Salesforce (CRM 0.99%) were up as much as 7.5% at the market open this morning after news that value-investment firm Starboard Value LP had acquired a stake in the company. As of 11:42 a.m. ET, the stock was holding a 3.4% gain on the day so far, outperforming the blue chip heavy Dow Jones Industrial Average.
Data by YCharts.
Market sentiment has turned the corner after a brutal sell-off last week. But the Starboard news could be a strong signal to investors that Salesforce is starting to reach value territory after falling 40% year to date.
So what
Starboard Value is an investment advisor based in New York that looks for "deeply undervalued" companies. Salesforce is a fast-growing member of the Dow Jones. The company's blue chip status and attractive growth profile is going to attract the attention of notable hedge-fund investors as the stock falls.
Looking at the stock's trading history, it's a rare opportunity to scoop up a high-quality company at a lower valuation. The shares are currently trading at their lowest price-to-sales (P/S) ratio since the 2008 market crash. This is while management recently iterated on its last earnings call a commitment to improve free cash flow margin while delivering more revenue growth.
This is welcome news to value investors who have avoided the stock for a long time over its high valuation and lack of profitability. Management was favoring plowing resources back into the business to drive growth.
Now what
Salesforce delivered revenue growth of 22% year over year in the second quarter. However, management expects growth to slow to 14% in the third quarter. Some market participants are worried about a possible slowdown in cloud-services spending heading into next year, but the stock has already priced in a lot of bad news.
Considering its dominant position in the growing customer relationship-management market, Salesforce is one of the more attractive growth stocks to consider buying during the current market downturn.
