Investors are waking up this morning to see Salesforce (CRM) dropping nearly 7% in pre-market trading. This comes right after the announcement that Salesforce was buying Slack (WORK) for a cash and stock deal valued at $27.7 billion which is perceived generally as a good match.
This is Salesforce’s largest acquisition. Slack shareholders will receive $26.78 in cash and 0.0776 a share of Salesforce common stock (CRM) for each Slack share (WORK). This represents a 55% premium to Slack’s price on Nov. 24, the day before reports surfaced about a potential deal. The deal is expected to close by the end of July.
“This is a match made in heaven,” stated Marc Benioff, CEO of Salesforce. “Together, Salesforce and Slack will shape the future of enterprise software and transform the way everyone works in the all-digital, work-from-anywhere world. ”
So Why is Salesforces’s Stock Dropping?
Investors may be asking, why is Salesforce’s stock dropping after what many would say is good news. The answer to the reason why Salesforce stock is dropping is three reasons.
First, often companies that buy other companies drop in price after an acquisition, while the acquiring stock, in this case, Slack (WORK), increases the share. Yesterday Slack shares rose up 2.34%, but are currently down 1% in premarket.
Second, Salesforce’s stock was a bit overpriced and was in a consolidating pattern before the trade. The recent jump in share price would cause most stocks to have some kind of correction. However, we believe that CRM is currently overpriced to earnings, cash flow basis, and free cash flow basis.
Is Salesforce Stock (CRM) A Buy?
One of the first questions people ask when a stock like Salesforce drops is it a buy. The short answer is maybe if the price breaks $220. I personally get worried about buying stock where there have been recent big jumps. However, I love buying stocks after a dip or correction. CRM may be in the consolidation phase and jump up again soon. Analysts are overall bullish with an average target price of $259.79 which is way over the current price.
Salesforce Stock Pivots
Looking at the pivots, I see strong support around 206 and current support of $220. Hence I think anything below $220 would cause me to consider buying CRM.
Salesforce 1 Day Moving Averages – BEAR
It is very ugly for CRM regarding technicals and a clear BEAR trend.
|Exponential Moving Average (5)||247.25||Sell|
|Simple Moving Average (5)||248.49||Sell|
|Exponential Moving Average (10)||250.17||Sell|
|Simple Moving Average (10)||253.61||Sell|
|Exponential Moving Average (20)||251.18||Sell|
|Simple Moving Average (20)||252.73||Sell|
|Exponential Moving Average (30)||250.86||Sell|
|Simple Moving Average (30)||249.92||Sell|
|Exponential Moving Average (50)||247.86||Sell|
|Simple Moving Average (50)||251.26||Sell|
|Exponential Moving Average (100)||234.9||Buy|
|Simple Moving Average (100)||234.85||Buy|
|Exponential Moving Average (200)||213.58||Buy|
|Simple Moving Average (200)||201.3||Buy|
|Ichimoku Cloud Base Line (9, 26, 52, 26)||249.79||Neutral|
|Volume Weighted Moving Average (20)||250.98||Sell|
|Hull Moving Average (9)||241.89||Sell|