Salesforce (CRM 3.27%) is one of the iconic Silicon Valley stocks that dominated the market for much of the last two decades, essentially creating the software-as-a-service (SAAS) category and giving shareholders a 3,500% return since its public debut in 2004.

Salesforce's blue-chip status was made official when it was added as a component of the 30-stock Dow Jones Industrial Average in 2020, in what looked like a promising starting point for another decade of stock market dominance. But over the past year, the market hasn't been quite as kind to the specialist in customer-relationship management software, with share prices down 50% from their 52-week high. With the stock's valuation cut in half, this long-term winner finds itself in unfamiliar territory.

But the sell-off could be a buying opportunity before another fruitful decade ahead. Here are five reasons why Salesforce looks like an attractive investment at these levels.

A person using a tablet at work.

Image source: Getty Images.

1. Salesforce stock looks like a better value than ever

With a forward price-to-earnings (P/E) valuation of 27, Salesforce doesn't look like a typical value stock. But its current valuation was low enough to attract investment from hedge fund specialist Starboard Value, a noted value investor.

Software investors and analysts often value high-growth software and SAAS stocks using a price-to-sales (P/S) multiple, and Salesforce's P/S of 5 does not look prohibitive. I've always considered a P/S of 10 to 15 to be acceptable for a high-growth software stock, and Salesforce is now well below that range. Furthermore, the P/S of 5 is cheap relative to the company's historical valuation. In fact, this is its lowest P/S since the financial crisis in 2008, long before it was the software giant it is today.

2. An activist can help highlight a stock's value

Prominent investment adviser Starboard Value recently took a large stake in the company. Starboard is also an activist investor, and it gained some notoriety for its successful investment in Darden Restaurants.

Starboard founder Jeff Smith says he sees Salesforce as a significant opportunity and that he'd like to remain a long-term investor. He believes the company could improve its margins and says that it has the scale to achieve better profitability than peers that it is currently lagging in this area.

Salesforce is a large company with a powerful co-CEO in Marc Benioff (Bret Taylor is the other co-CEO), so there's no guarantee Smith will get the changes he wants. But at a minimum, his presence should help to bring focus to these goals and can highlight the company's appeal as a value opportunity.   

3. Salesforce's product is sticky

Salesforce's software is crucial to the way that large companies do business today because its Sales Cloud increases sales-representative productivity and thus drives revenue.

This makes customers unlikely to cut Salesforce to save costs, even in a recessionary environment. Starboard's Smith noted this, saying that "Salesforce is ingrained in the fabric of so many companies and has become so important in the way they operate and conduct businesses." This is borne out by the fact that net revenue retention has remained stable at roughly 90% over the past two decades. 

Over 150,000 companies use Salesforce today, and it has 17 million Trailblazers -- people who are trained on its products. The company is like an economy unto itself. The market intelligence firm IDC forecasts that by 2026, the Salesforce ecosystem will create 9.3 million new jobs and create $1.6 trillion in new business revenue worldwide. 

4. Salesforce is getting serious about returns to shareholders

Salesforce has been an acquisitive company over the years, something that can make some investors nervous during a tighter economy. But co-CEO Taylor reassured the market that it won't make any value-destructive acquisitions, saying that he found a great company to buy: Salesforce itself, through a new $10 billion share-repurchase authorization.

This is the first time that Salesforce will be buying back stock. Share buybacks are a signal of confidence and can be beneficial to shareholders because they reduce the number of shares outstanding and increase earnings per share over time. Furthermore, they can indicate that management thinks its stock is undervalued. Ultimately, initiating this share repurchase program is like saying that it is serious about creating value for shareholders.

5. Salesforce has a winning track record 

No matter what happens, businesses are still prioritizing digital transformation, and as the world's No. 1 provider of customer relationship management software by market share, Salesforce will continue to benefit from this secular trend.

The company has a goal of getting to $50 billion in revenue by 2026, which would be almost double current levels. Salesforce has an Ironman streak of increasing revenue for 73 quarters in a row, so its track record gives credence to management's ability to hit this ambitious target.

If Salesforce can do that, the stock should be worth considerably more in several years, regardless of what happens next month or next quarter.