DailyPlay – Opening Trade (CRM) – May 13, 2024

CRM Bearish Opening Trade Signal

Investment Rationale

Once a darling of the tech industry, Salesforce fell out of favor until recently when it hit a new all-time high earlier this year. However, since then, investors have continued to shy away from this cloud computing stock as they focus on more pure AI-related companies and Salesforce is at risk of turning lower again. As CRM matures and growth rates moderate, it simply cannot continue to command the industry-leading valuations it once did and has to face the reality of its fundamentals. 

Technical Analysis

CRM has traded in a wide range of $130 to $310 over the past 5 years. Earlier this year it revisited the upper bound of the range and attempted to breakout higher to a new all-time high. This quickly failed and the stock has reversed back into the range with momentum recently turning negative after gapping lower. Now $280 resistance level looks like it will hold and suggests that CRM will likely continue to trade towards the midpoint of the range in the $210-220 area.

CRM – Daily

Fundamental Analysis

CRM currently trades at over 28x forward earnings, which flies in the face of the growth rates that have moderated significantly over the past 12 months. After averaging EPS growth of over 45% over the past 3 years, future EPS growth is expected to slow to just a third of that of that at 16%. And Revenue growth is expected to slow to under 10%. This makes a valuation that is 40% higher than the S&P 500 harder to justify when growth rates are slowing down significantly.

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 4 Contracts June 21st $270/$250 Put Vertical Spreads @ $5.58 Debit per Contract.

Total Risk: This trade has a max risk of $2,232 (4 Contracts x $558) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $558 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is currently neutral.

1M/6M Trends: Neutral/Neutral

Relative Strength: 8/10

OptionsPlay Score: 127

Stop Loss: @ $2.79 Credit. (50% loss of premium paid)

View CRM Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View CRM Trade