Salesforce (CRM -1.85%) posted its latest quarterly report on Nov. 30. For the third quarter of fiscal 2023, which ended on Oct. 31, the cloud-based software company's revenue rose 14% year over year (and grew 19% in constant currency terms) to $7.84 billion and surpassed analysts' estimates by $10 million. Its adjusted earnings increased 10% to $1.40 per share and also cleared the consensus forecast by $0.18.

Salesforce's growth rates seemed stable, but they didn't impress the bulls. Its stock remains down nearly 40% this year and continues to trade at a discount to many of its cloud-based peers. Is it finally time for investors to take the contrarian view?

People in street outside building at Salesforce's Dreamforce 2022 event.

Image source: Salesforce.

Why is Salesforce's growth cooling off?

Salesforce operates the world's largest cloud-based customer relationship management (CRM) platform. It also provides additional cloud-based marketing, commerce, analytics, and data visualization services.

For many years, Salesforce benefited from the digitization of large businesses. It locked in its customers with sticky subscriptions and its own proprietary apps, and it repeatedly expanded by gobbling up smaller companies. Its business model remained resilient during the pandemic, which drove companies to accelerate their digital transformations and accommodate the shift toward hybrid and remote work.

That's why Salesforce's revenue and adjusted earnings per share (EPS) rose 24% and 65%, respectively, in fiscal 2021 (which ended on Jan. 31, 2021). In fiscal 2022, its revenue grew another 25%, but its adjusted EPS dipped 3% against its bigger investment-related gains in the previous year.

However, Salesforce's year-over-year revenue growth decelerated throughout the first three quarters of fiscal 2023 as it faced two major challenges.

First, macro headwinds caused large companies to rein in their spending and postpone big software deals. Second, the rising dollar -- which was bolstered by higher interest rates -- generated tough currency headwinds.

As a result, Salesforce expects its reported revenue to only rise 17% for the full year, as its adjusted EPS grows 3%. That slowdown isn't disastrous, but it raises some questions regarding the company's long-term goal of generating $50 billion in annual revenue in fiscal 2026. To achieve that goal, it would need to grow its top line at a compound annual growth rate (CAGR) of 17% between fiscal 2023 and 2026 -- which assumes its deceleration this year won't lead to a deeper slowdown.

Why aren't investors excited about Salesforce?

But analysts aren't as optimistic. They expect Salesforce's revenue to rise 17% in fiscal 2023, 14% in fiscal 2024, and 16% in fiscal 2025. We should be skeptical of those expectations, but that slowdown could certainly occur if the current macro headwinds lead to a full-blown recession.

The bears will also point out that Salesforce still faces lots of competition from Microsoft's (MSFT -0.82%) Dynamics CRM, as well as Adobe's (ADBE -0.13%) e-commerce and marketing tools. They'll also claim that Salesforce's heavy dependence on acquisitions could "diworsify" its business and squeeze its margins. Co-CEO Bret Taylor's recent decision to leave Salesforce, which will leave founder Marc Benioff as the only CEO, raises additional questions regarding its future.

However, the bulls will argue that Salesforce's recent acquisitions -- including Tableau, Mulesoft, and Slack -- have increased the overall stickiness of its cloud-based ecosystem. They'll also claim that economies of scale are boosting its margins as it expands: Salesforce expects its adjusted operating margin to expand 200 basis points to 20.7% for the full year, and to exceed 25% by fiscal 2026.

Lastly, Salesforce's stock looks fairly cheap at 31 times next year's earnings and four times next year's sales. Its smaller healthcare-oriented CRM peer Veeva (VEEV -0.57%), which is growing at a similar rate, trades at 40 times forward earnings and 12 times next year's sales. ServiceNow (NOW -1.65%), the cloud-based digital workflow company which is growing slightly faster than Salesforce, trades at 43 times forward earnings and 10 times next year's sales. That's probably why the value-oriented activist hedge fund Starboard Value acquired a significant stake in Salesforce this October.

So is Salesforce worth buying right now?

Salesforce will likely remain in the penalty box until the macro situation improves and its revenue growth accelerates again. That said, I'm still optimistic about Salesforce's long-term prospects as large companies continue to digitally optimize their operations.

Therefore, I believe Salesforce is still a good long-term investment at these levels -- but investors shouldn't expect the bulls to rush back until some of these near-term headwinds dissipate.