Salesforce (NYSE: CRM) shareholders had a bad week as the release of December’s Federal Reserve minutes coincided with a downgrade from UBS Analyst Karl Keirstead, causing the stock to close-out the first week of the new year down 10%.
The release of the Federal Reserve December minutes caused a swift decline in the market on Wednesday afternoon. The minutes painted a more hawkish picture of the Federal Reserve than what investors had come to believe following the statements made on December 15. Increasing interest rates affect the valuations of high-growth stocks more than their low price/earnings counterparts (return compounding greatly diminishes the value of far-into-the-future profits), making high-growth technology stocks the losers of the week. The Nasdaq composite on a whole closed the week down 4.3%.
Unfortunately for Salesforce, UBS Analyst Karl Keirstead published his downgrade of the stock on Wednesday as well, exacerbating Salesforce’s precipitous drop in price. Keirstead slashed his price target for the company’s stock from $315 to $265, a decline of 16%, while simultaneously downgrading his ‘buy’ recommendation to a ‘hold’. The rationale for the downgrade centered on growth. Namely, Keirstead is concerned that organic growth may slow down after businesses have spent the past 2-years feeding their software budgets to facilitate work from home.
Keirstead’s concerns are very real and reflect sentiments that are sure to echo in the new year, the theme of which will be how investors (and analysts) mistook COVID-generated, pull-forward sales for sustainable growth trajectories.
And as the omnipresent Omicron variant is now forcing the public to accept the disease as another surety in life – along with death and taxes -, consumer demand will likely continue to shift back-and-forth, between those equities that stand to benefit from the re-opening, and the pandemic ‘darlings’ that have been boosted by the lockdown-induced ‘work from home’ movement.