A year-to-date gain of approximately 9.52% gain for shares of Salesforce.com, Inc. (CRM) shouldn't surprise you, as this stock is an institutional favorite. In fact, the company's institutional ownership rate sits at 88%. The main factor that drives shares is none other than supply and demand – and over the past year, Salesforce.com stock has been in demand. Large institutional players have been in accumulation mode as the company continues to outperform expectations. Betting on leading stocks with growing sales, great technicals and increasing institutional activity can be a smart move for long-term shareholders.

Being that Salesforce.com is the leader in the customer relationship software market, the growth aspects of the company haven't slowed – thus keeping institutions invested. The fierce bounce back the market has made from the Feb. 8 lows is tiny in relation to the move in Salesforce.com shares over the same period (+5.34% for the S&P 500 vs. +9.92% for Salesforce.com). This makes a very compelling case for long-term bullish investors. In the view of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation, and since October 2017, Salesforce.com stock has logged 14 of these rare signals. This indicates that demand for the shares is strong.

Notably, in 2018, MAP has flagged two potential institutional buy signals in Salesforce.com, which gives us the expectation that this stock will continue to head higher. We want to put the odds in our favor and bet alongside big investors who have a favorable outlook on the company. In the chart below, Salesforce.com stock broke out new 52-week highs accompanied by institutional accumulation.


Courtesy of TradingView.

MAP's process focuses on identifying companies with healthy fundamentals accompanied by outsized, unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

Many of the top performing stocks over the years have received persistent institutional support, telling a narrative of where big firms may see opportunity. A company like Salesforce.com has been one of the best growth stories out there.

When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of thse for Salesforce.com are as follows:

  • Year-to-date outperformance vs. overall market: +~8.54% vs. SPDR S&P 500 ETF (SPY)
  • Year-to-date outperformance vs. sector: +~5.66% vs. Technology Select SPDR ETF (XLK)
  • And most importantly, institutional accumulation signals

On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. The areas you want to consider important for continual institutional support are:

  • Three-year sales growth rate: +27.31%
  • One-year EPS growth rate: +30%
  • Three-year EPS growth rate: +37.82%

Salesforce.com checks the box on strong technicals and vibrant fundamentals while continuing to gain institutional momentum, which may point to further price appreciation.

Taking a look at the overall picture of the institutional accumulation/distribution activity that we monitor for the broad market, signs recently have shown that buying is increasing since the February sell-off. With the market staging a comeback being led by the tech sector, we want to bet alongside strong stocks we believe institutions are buying. We feel that Salesforce.com has the fundamental growth rate and institutional support that are attractive for those looking for stock appreciation. Salesforce.com stock has been gaining rapidly over the past year, with accumulation signals reinforcing the move. All of this points to the odds being favorable for the stock.

The Bottom Line

Salesforce.com represents a potential buying opportunity for the long-term growth investor. Given the recent potential institutional accumulation signals and outperformance vs. the market, this stock could be worth of a spot in a bullish growth portfolio.

To learn more about MAP’s institutional signals please visit our "About Us" page.

Disclosure: The author holds a long position in CRM at the time of publication.

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