CRM

Salesforce is a high-quality franchise that the market is pricing like a tired one. Revenue reached $41.5B (+9.6%), the latest step in a steady five-year march from $26.5B, but the more important story is the profit inflection: net income went from a near-breakeven $208M in FY2023 to $7.46B in FY2026 (+20.3%), and diluted EPS jumped +22.6% to $7.80. The MD&A is explicit that this is deliberate — management cites 'various restructuring initiatives,' reductions in 'workforce, office space and data centers,' and a 'commitment to profitable growth,' which lifted operating margin to ~20% from ~19%. With 77.7% gross margins, operating cash flow of $15.0B (+14.5%) against just $594M of capex, the business throws off roughly $14.4B of free cash flow — a ~35% FCF margin. Crucially, forward visibility is improving faster than reported revenue: total RPO of $72.4B (+14%) and current RPO of $35.1B (+16%) signal that bookings, helped by the Agentforce/agentic-AI push, are not decelerating the way the headline growth rate suggests.

Valuation is where the call is made. At $151.78 the stock trades at 19.5x FY EPS and just 3.4x sales — depressed multiples for a software leader of this quality. EPS growth of +22.6% puts the PEG comfortably below 1, and the ~$14.4B of FCF against a $140B market cap is roughly a 10% FCF yield, rare for a durable enterprise-software compounder. Management is leaning into that cash: $12.6B of buybacks (+60.9%, ~50M shares retired, share count -4.0%) plus $1.59B of dividends. The buyback alone is mechanically amplifying per-share results. In short, the market is paying for ~10% growth while ignoring a margin-expanding cash machine that is shrinking its own share count.