A bearish options trade on a one-time tech darling that could struggle in the new AI world

Published Wed, May 8 202410:48 AM EDT

After hitting an all-time high earlier this year, investors have since shied away from Salesforce (CRM) as they focus on more pure AI-related companies. I think shares of the one-time cloud computing darling are at risk of falling even lower and I will give a bearish options trade to capitalize on it. As CRM matures and growth rates moderate, it simply cannot continue to command the industry-leading valuations it once did and has to face the reality of its fundamentals. If we look at a 5-year chart of CRM, we see that the stock has traded within a significantly wide range of $130 to $310. Earlier this year it revisited the upper bound of the range and attempted to breakout higher to a new all-time high. This quickly failed and the stock has reversed back into the range with momentum recently turning negative. This suggests that CRM will likely continue to trade back towards the midpoint of the range in the $210-220 area. CRM currently trades at over 28 times forward earnings, which flies in the face of the growth rates that have moderated significantly over the past 12 months. After averaging EPS growth of over 45% over the past 3 years, future EPS growth is expected to slow to just a third of that of that at 16%. And revenue growth is expected to slow to under 10%. This makes a valuation that is 40% higher than the S & P 500 harder to justify when growth rates are slowing down significantly. The trade With earnings in three weeks, CRM options prices are slightly elevated and warrant using a spread to lower the cost of seeking bearish exposure. I'm going out to the July expiration and buying the $280/$250 put vertical at a $10.70 Debit. This entails: Buying July $280 Puts @ $15.43 Selling July $250 Puts @ $4.73 This would risk $1,070 per contract if CRM is above $280 at expiration, while potentially making $1,930 per contract if CRM is below $250 at expiration. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.