Salesforce is ‘very cheap’ for long-term investors

Salesforce Inc (NYSE: CRM) down nearly 40% from its all-time high is an opportunity to buy a quality name at a deep discount, says Mike Nicolas. He’s the Portfolio Manager at Oakmark Funds.

Nicolas’ bull case for Salesforce stock

His constructive view on Salesforce is based on its strong fundamentals. Nicolas is convinced the cloud company can further improve its margin profile over time. On CNBC’s “Squawk on the Street”, he said:

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Salesforce is generating slightly lower margins today than what we think they’re capable of, but they have all the ingredients to be a much higher margin business. They already have immense scale, very low churn, and very strong pricing power.

At five times forward revenue, Salesforce is “very cheap” for the long-term investors, he added. A day earlier, CEO Marc Benioff sold 2,300 shares of the California-based company.

Salesforce had a beat and raise quarter

Last week, Salesforce Inc reported better-than-expected results for its fiscal first quarter and raised its full-year guidance for earnings. As per the Oakmark expert:

It’s got 80% gross margins; it grows 20% organically and almost all of that revenue is recurring. With recent stock price weakness combined with strong fundamentals, Salesforce will yield impressive results over a longer time horizon.

Nicolas has immense confidence in CFO Amy Weaver who, he says, is bringing a culture of financial discipline at Salesforce. Wall Street, on average, sees a 30% upside in CRM.