A quality growth stock to buy on the recovery

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Unlike the pandemic, 2022 has not been a good year for growth stocks. For example, the Nasdaq, home to many of these growth stocks, has fallen 24% year-to-date and 12% over the past year. This is due to macroeconomic issues, including rising inflation and rising interest rates.

As a result, investors moved away from growth stocks in favor of value and income stocks. But as a long-term investor, I think this drop has presented an opportunity for many large companies, trading at historically low prices.

After Selling power (NYSE: CRM) released its promising business update Tuesday night, I’d Buy More From This Cloud-Based Software Company.

The recent trade update

Despite macroeconomic headwinds, Salesforce was able to achieve strong growth in the first quarter of 2022. For example, it generated $7.41 billion in revenue, up 24% year-on-year, while the flow operating cash flow increased by 14% year-on-year. -year to $3.68 billion.

Additionally, the group has $42 billion in future revenue under contract, which gives the company very strong visibility for the future. However, the Salesforce stock price is still down 30% over the past year, which seems disconnected from the company’s performance.

These results also highlighted that demand remained strong and that consumers continued to use the company’s customer relationship management services. Therefore, I am optimistic that, unlike many other growth stocks, the company has managed to manage inflation issues well.

In the biggest sign of that strength, Salesforce raised its adjusted earnings estimate for the year to $4.75 per share, up from the previous guidance of $4.63. It was until “disciplined decision making”, which allowed the company to increase its operating margins. In the current macroeconomic environment, signs that the company is increasing its profit margins demonstrate its quality.

Some of the disadvantages

Despite this excellent business update, Salesforce isn’t immune to issues with other growth stocks. For example, the company had to reduce its revenue forecast. As a result, revenue for the full year is now expected to total approximately $31.75 billion, down from expectations of $32 billion.

Although it has been attributed to exchange rate volatility, it may be a sign of slowing growth. This could have negative impacts.

There is also a risk that as inflation continues to soar, companies will be forced to cut costs further. This may cause them to cancel Salesforce subscriptions altogether or spend less. Although contracted income helps alleviate this worry, it is still a risk that needs to be considered.

What do I do with this growth stock?

I already own some Salesforce stock, and at these prices I’m tempted to add more. Indeed, while a P/E ratio of 35 isn’t generally considered a bargain, it’s historically low for Salesforce. In fact, over the past five years, he’s had an average P/E ratio of over 200.

As the company focuses on its profitability, I believe there is room to increase its profits over the next few years. Therefore, I would definitely add more Salesforce stocks to my portfolio.

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