This article is for education purposes only, and not to be taken as advice to buy/sell. Please do your own due diligence before committing to any trade/investment.
Technology companies have been taking a beating since the start of the year.
This software-as-a-service (SaaS), Salesforce, isn’t spared.
Does this mean that it’s a good idea to short its shares?
Shall we have an overview of Salesforce to arrive at a conclusion?
Brief History of Salesforce
Founded in 1999, Salesforce is a very young and fast-growing company.
The company was born to be “a world-class Internet company for sales force automation.”
With a laser-like focus and clear vision, Salesforce grew rapidly to 40 employees in its first year alone!
However, things weren’t rosy for too long.
The Dotcom bubble burst in 2000 and had negatively impacted Salesforce.
Salesforce grew from strength to strength, overcoming this setback.
Fast forward to today, Salesforce is the world’s number 1 customer relationship management, drawing companies and their customers closer.
Being number 1 is great. Is Salesforce profitable? Is it financially strong?
Let’s find out in the next section.
Business Model and Financials
To tell if Salesforce is financially healthy and profitable, let’s focus on its total revenue and net income (the blue and red bars respectively).
A quick glance and you’ll notice that Salesforce’s total revenue has been growing strong year-on-year. Its total revenue in 2021 has more than tripled from 2015!
That’s furious growth!
Can the same be said of its net income?
Unfortunately, its net income is inconsistent. After enjoying a rise in its net income year-on-year from 2015 to 2018, it dropped drastically in 2019.
It shot up from $126m in 2019 to $4.07b in 2020, rising by a whopping 3,130%!
But, its net income sank more than 64% from $4.07b in 2020 to a mere $1.4b in 2021.
Given that Salesforce operates on a membership business model, these wild swings in its net income is a huge red flag for traders and investors alike.
Is this conclusive enough to know whether you should take a short position trade on the shares of Salesforce?
Let’s analyze its price chart.
Technical Analysis on Salesforce (NYSE: CRM)
From the chart above, you can tell that the share price of Salesforce is in a downtrend.
This can be seen from the number of red candles and red down arrows.
With this in mind, is it ripe to short the shares of Salesforce for a position trade?
This is where the indicators on the chart come in handy.
The first indicator to watch is the red arrow.
A red arrow will appear at the start of a predicted downtrend.
Here, there’s a red arrow above the latest candle of Salesforce. This suggests that the downtrend is going to resume after a short pause.
Next, we have a look at its Trend Impulse Factor indicator.
This indicator tells you if the momentum is likely to be sustained through the color of its bar.
Here, the bar of the Trend Impulse Factor indicator is light green in color, suggesting that the bearish momentum is weak and thus unlikely to be sustained.
When it’s dark green in color, momentum is strong and thus the price movement is likely to be sustained for the foreseeable future.
Given that only the red arrow was out, it isn’t the time to sell shares of Salesforce short for a position trade.
Shares of technology companies may continue to get hammered in the environment of rising interest rates. The days of cheap money is over for the time being.
Salesforce is no exception.
Though it has been able to grow its total revenue, its net income remains overly inconsistent. There are years with eye-popping net income figures, and other years of extremely disappointing results.
All the negative issues show up on the price chart of Salesforce.
However, the indicators don’t suggest that Salesforce’s shares could drop further in the near term.
Trading stocks without a proper system can be highly risky. This is why the TradersGPS (TGPS) was created.
The indicators (red arrow and Trend Impulse Factor) will help you determine if a stock is ready for action to be taken. You won’t have to feel in the dark and make wild guesses.
Hence, its safe to conclude that this isn’t the time to go short on its shares yet.
What should you do in Q4 2022 to grow your portfolio?
Stocks have been really choppy the past few weeks.
But as usual, it’s not the 1st time we have seen such volatility and it pays to constantly remind ourselves to focus on the charts and react accordingly.
The WORST thing you can ever do in a volatile market is to trade aggressively.
Before you know it, reversals will come and go at the most unexpected times to wipe you out.
This is why during such volatile times, you MUST know how to use the right strategies.
In fact, I can tell you as a trader of over 20+ years, profiting in a volatile market is not difficult.
The key here is to NOT fight the volatility head-on.
Lots of people like to challenge the volatility head-on, trying to make predictions or day trade and think they can exit with profits before a reversal happens.
That to me is fighting a losing battle.
Rather, 1 important concept you should understand is this – A volatile market does not mean ALL stocks are volatile.
As you are reading this right now, there are many stocks out there with strong persistent trends that we can capitalize on.
The only part that can be challenging is finding these ‘hidden gems’.
But once you know how to find them, you will literally possess a weapon that can help you find winning stocks with high win-rate while carrying very little risk.
As we see the market continuing to be volatile in the coming weeks…
It’s extremely important to know where and how to find real opportunities and what proven strategies to use that are meant for such situations.
I will be sharing certain strategies that work exceptionally well in such volatile situations to identify and sieve out winning ‘hidden gems’ stocks to capitalize in my upcoming LIVE training (100% free).
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