Key insights
- An analyst's DCF valuation suggests Salesforce is undervalued, with a base-case intrinsic value of $264 versus a recent price of $187. The model projects revenue growth, rising ROIC, and margin expansion. The analyst believes the market is underestimating Salesforce's potential due to concerns about the SaaS sector. Bull and bear case scenarios are also provided.
I built a valuation model on Salesforce to test what the business is worth under what I believe is a realistic set of assumptions on growth, margins, reinvestment and cost of capital.
My assumptions and model:
Revenue
I model revenue growing from a FY2026 base of $41.5B to about $78.5B by 2035.
Year 1 growth is 10.0%, Years 2 to 5 decelerate from 9.5% to 7.0%, and Years 6 to 10 fade to 3.0%.
ROIC
Current ROIC looks to be around 10% to 12.5% depending on invested capital definition. In the model, aggregate ROIC rises into the low-20s by Year 10.
WACC
Risk-free rate: 4.35%
Equity risk premium: 4.23%
Beta: 1.20
Cost of equity: 9.43%
After-tax cost of debt: 3.79%
Capital structure: 80% equity / 20% debt
Base-case WACC: 8.3%
Terminal value
Terminal growth rate: 2.5%
FCFF in Year 11: $19.64B
Terminal value: $338.6B
Present value of terminal value: $152.5B, around 63.9% of enterprise value
Equity bridge
Enterprise value: $238.6B
Cash + marketable securities: $9.6B
Strategic investments: $7.6B
Debt: $39.5B
Equity value: $216.3B
Intrinsic value
Estimated current shares outstanding: about 820m (after the March 2026 ASR).
Intrinsic value per share: $263.79
Scenarios
Bear case: $171 (assumes 9.0% WACC, 1.5% terminal growth, and EBIT margin reaching 24% by Year 1)
Base case: $264 (as modelled above)
Bull case: $382 (assumes 7.3% WACC, 3.0% terminal growth, and EBIT margin reaching 32% by Year 10)
Conclusion
At the recent close of about $187, Salesforce looks undervalued versus my base case, implying about 29% margin of safety.
My view is that the market is pricing in too little future margin expansion and too much long-run risk relative to the company’s cash generation, scale, and operating leverage potential, all currently overshadowed by the SaaS Carnage of 2026.
The full model with numbers and reasoning can be found here for free: https://open.substack.com/pub/hatedmoats/p/salesforce-dcf-valuation
What do you think? Is market being too pessimistic and CRM is currently a good value opportunity, or are the risks still not fully priced in?