The last few months have been an absolute whirlwind for Salesforce.com (CRM 2.44%). The company has been under intense scrutiny from Wall Street as it works to integrate Slack, which it acquired for $27 billion. Additionally, top executives have been resigning from the business, leaving longtime founder and CEO Mark Benioff to fend for himself against activist investors

If this were not bad enough, big tech has been warning for quite some time that corporate budgets are tightening, sales cycles are getting longer, and investors should expect protracted challenges.

Salesforce.com reported earnings for the fourth quarter and full fiscal year ended Jan. 31, 2023, last week. To everyone's surprise, the company impressed across the board. Let's dig in and analyze the results and see if Salesforce deserves a spot in your portfolio.

Don't call it a comeback

Salesforce joined its big tech cohorts by announcing employee reductions in early January. Several companies including Meta, Microsoft, Alphabet, and Amazon dominated headlines due to layoff and cost-efficiency plans.

According to publicly available data, the consensus among Wall Street analysts was that Salesforce's fourth-quarter earnings per share (EPS) would be $1.36. However, the company reported EPS of $1.68, beating expectations by a healthy margin. In addition, the average revenue estimate among analysts was approximately $8 billion, while the company generated $8.4 billion during Q4.  

It is encouraging to see the impacts of Salesforce's cost-reduction efforts and focus on growth come to fruition in such a short time frame. Benioff discussed the company's operational efficiencies during the earnings call and stated:

That is the No. 1 thing we talked about at the start of every meeting we have in this company. And that is why we were able to deliver that in 90 days. You all know that we've never had an efficiency focus in the company before because we've had 24 incredible years of where we've had to just grow, grow, grow. There have been moments where we've had to pull back.

'01, '02, bad recession, we had to pull back. '08, '09, we had to pull back and reassess. We're kind of looking at this moment as, hey, we can reassess. This is a incredible moment.

Although the business is clearly scaling back some investments, it still has a framework in place to generate strong top-line growth while also maintaining a disciplined cost profile in an effort to expand margins.

A person standing next to a whiteboard giving a presentation to five people seated around a conference table.

Image source: Getty Images.

What is Wall Street saying?

Following Salesforce's earnings call, analysts revised their respective price targets. Although some banks have buy or buy equivalent ratings assigned to the stock, others have neutral ratings. However, nearly all of them increased their price targets.

Citigroup boosted its price from $182 per share to $210, while Deutsche Bank raised its price from $190 per share to $240. Moreover, both Wells Fargo and Oppenheimer increased their price estimates to $225 per share.  

In the wake of the company's earnings report, the stock rocketed up 15% the next trading day. Even with this short-term momentum, the shares still trade at a hefty discount to the price estimates referenced above. As of the time of this writing, Salesforce trades at $186 per share, well below several Wall Street analysts' expectations.

Should you buy?

One of the biggest things to keep in mind is that the capital markets tend to be reactive. Stated differently, sometimes investors will act more on emotion than fundamental logic.

Salesforce stock has experienced a sharp move up in a short time frame. It would not be surprising to see the shares fall in the coming days as momentum investors look to lock in short-term profits. While the stock may not fall to pre-earnings prices, it is likely that Salesforce will experience a minor sell-off.

If you are looking to initiate a position in the stock, it may be worth waiting to see if a sell-off occurs in the near future. If you are already a shareholder and plan to hold for the long term, buying now as opposed to later will not make much of a difference for your cost basis.

In either scenario, Salesforce appears to be a great long-term investment. While one quarter is not indicative of future results, investors should be encouraged by management's ability to execute, despite all of the news surrounding the company lately. While topics like inflation and fear of recession will likely continue throughout calendar 2023, Salesforce's earnings results prove that there are long-term secular tailwinds in the software sector, independent of near-term challenges.