Despite shrinking by US$11b in the past week, Salesforce (NYSE:CRM) shareholders are still up 60% over 5 years

Salesforce, Inc. (NYSE:CRM) shareholders might be concerned after seeing the share price drop 18% in the last month. But the silver lining is the stock is up over five years. In that time, it is up 60%, which isn't bad, but is below the market return of 66%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 42% drop, in the last year.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

See our latest analysis for Salesforce

Given that Salesforce only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

For the last half decade, Salesforce can boast revenue growth at a rate of 22% per year. Even measured against other revenue-focussed companies, that's a good result. While the compound gain of 10% per year is good, it's not unreasonable given the strong revenue growth. If the strong revenue growth continues, we'd expect the share price to follow, in time. Opportunity lies where the market hasn't fully priced growth in the underlying business.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Salesforce is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Salesforce in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that Salesforce shareholders are down 42% for the year. Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Salesforce better, we need to consider many other factors. For instance, we've identified 4 warning signs for Salesforce that you should be aware of.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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