Salesforce stock price forms a risky pattern ahead of earnings

Salesforce stock price remained under intense pressure in November as concerns about the company’s AI business continued. CRM was trading at $230 on Monday, down by 37% from the year-to-date high, making it one of the top laggards in the Dow Jones Index. So, will the CRM stock rebound or continue crashing ahead of its earnings this week?

Salesforce stock price technical analysis points to more downside 

The daily timeframe chart shows that the CRM stock price has crashed in the past few months. This crash happened after the stock formed a double-top pattern at $367 and a neckline at the support at $312. A double-top is one of the most popular bearish reversal signs in technical analysis.

The stock has remained below the 50-day and 200-day Exponential Moving Averages (EMA), a sign that bears remain under control for now. It also remains below the Supertrend and the Ichimoku cloud indicator.

Most importantly, the stock has formed a descending pattern, with the key support level being at $228.48 and the descending trendline, which connects the highest swings since May this year.

Therefore, the stock will likely have a bearish breakdown when it moves below the lower side of the descending triangle pattern. A move below the support will point to more downside, potentially to the key support level at $200. 

The alternative scenario is where the stock rebounds after earnings as bulls target the upper side of the descending trendline at $250.

Salesforce earnings preview 

Salesforce, the biggest company in the CRM industry, will report its financial results this week and provide more color on its business.

The company’s revenue rose by 10% in the third quarter to $10.2 billion, with its subscription and support revenue rising by 11% to $9.7 billion. These results and its guidance were better than expected.

Its guidance was that its business would make between $10.24 billion to $10.29 billion, representing an annual growth rate of between 8% and 9%. That figure would bring its full-year revenue to between $41.1 billion and $41.2 billion.

The main concern among investors is that its investments in the AI industry, where it is focusing on AgentForce, is not helping its revenue growth accelerate.

Data compiled by Yahoo Finance shows that the average revenue will be $10.27 billion, up by 8.7% from the same period last year. Its earnings-per-share (EPS) is expected to move from $2.41 last year to $2.86. 

Salesforce has always been a highly conservative company, meaning that its revenue and earnings will likely be better than its guidance and what analysts expect.

Another positive is that the company has become a bit undervalued, with its forward price-to-earnings ratio being 20.36, lower than the sector median of 23.57. This figure is also much lower than its five-year average of 36.

Similarly, the forward PEG ratio of 1.22 is lower than the sector median of 1.6.

Analysts have a relatively bullish outlook for the stock, with the average target being $325, much higher than the current level of $230. The most recent estimates were from companies like Jeffries, Cantor Fitzgerald, Barclays, and Evercore.

READ MORE: Salesforce stock price forms H&S: brace for a crash

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