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Investing in stocks that offer growth at a reasonable price (GARP) can be a very successful strategy. This strategy – which has elements of both growth investing and value investing – was made famous by legendary fund manager Peter Lynch, who generated huge returns for his investors back in the 1980s.
One stock that appears to offer growth at a reasonable price today is software powerhouse Salesforce (NYSE: CRM). Here’s a look at the investment case, and why I just bought more of it for my portfolio.
Salesforce has AI agents
Salesforce is the global market leader in customer relationship management (CRM) software. Across the world, it has more than 150,000 customers.
The company is fast-becoming much more than a simple CRM business, however. Last year, it launched an AI agent solution for businesses, ‘Agentforce’, and this side of the business is growing rapidly.
It’s the Agentforce offering that excites me here. Looking out over the next five to 10 years, I think this service has enormous potential.
I believe that in the years ahead, companies of all sizes will turn to AI agents to increase efficiency (they can complete a lot of tasks autonomously). And I think Salesforce may end up with significant market share.
Decent growth
Now, last week, Salesforce posted its earnings for the quarter ended 30 April. And they were pretty good.
For the quarter, total revenue was up 8% year on year to $9.8bn. On the back of this performance, the company raised its full-year guidance slightly.
In terms of AI, Data Cloud and AI annual recurring revenue was around $1bn, up more than 120% year on year. The company noted here that since the launch of Agentforce in October last year, it has closed over 8,000 deals, of which half are paid.
I’m pleased by our momentum as we capitalise on the exciting agentic AI opportunity
Robin Washington, Salesforce President and Chief Operating and Financial Officer
The market wasn’t that excited about the results though. The following day, the share price fell despite the increase to guidance and the huge increase in AI revenues.
I bought more shares
I took advantage of the share price weakness to buy more shares for my portfolio. I paid a price of $257 per share (about 30% below its all-time high).
That share price looked great value to me. Given that the consensus earnings per share forecast for this financial year is $11.30, I bought at a price-to-earnings (P/E) ratio of just 22.7.
To my mind, that’s a very reasonable valuation (growth at a reasonable price) for this company. Especially when you consider the long-term growth potential from AI.
Risk/reward
There are a few risks here, of course.
One is acquisition risk. Just last week, Salesforce announced the acquisition of data company Informatica for $8bn.
It believes that this deal will strengthen its data and AI offering. However, there’s no guarantee that it will work.
Another risk is competition from rivals, both in CRM and AI. The competitor I’m most worried about is ServiceNow, which also has AI agents.
I like the risk-reward set-up at the current share price though. I think this stock is worth considering as an AI play and I plan to hold it for the long run.
