Valuing software after the growth premium: Salesforce

For a decade, software valuation meant one question: how fast is revenue growing? Salesforce is what the aftermath looks like - and the model handles it by changing which profile of methods it applies.

What this example teaches

• Why high-growth and mature software need different method weightings
• What stock-based compensation does to "cheap" software multiples
• How to read a very large model-fair-value gap with appropriate suspicion

Model snapshot - June 11, 2026. Price $170.21. Blended model fair value estimate $325.17, which sits 91% above the price - the largest differential in this library, and the piece spends most of its words on why a reader should treat that number carefully.

Two software profiles

The model weights growth software on a revenue-and-growth profile: price-to-sales and PEG carry the most weight, because early in a software company's life, revenue scale and growth rate predict eventual cash generation better than current earnings do. But when revenue growth decays toward single digits, the market re-prices the business on what it earns now - and the model mirrors that with a mature-software profile anchored on P/E, EV/EBITDA, and price-to-free-cash-flow instead.

Salesforce on the snapshot date: trailing P/E of 20, forward P/E of 12, and a free-cash-flow yield of roughly 10%. Those are industrial-company multiples attached to a 70%-plus gross-margin subscription business - which is why, under the model's sector calibration, most methods produced estimates far above the price.

Method	Model fair value (6/11/26)	Note
DCF	$510.63	10% FCF yield compounding
P/S (sector-calibrated)	$507.63	sector revenue multiple
P/B	$405.74	acquisition-inflated book
EV/EBITDA	$348.73
P/E (sector-calibrated)	$293.17
PEG	$245.39	growth-adjusted
EPV	$84.63	zero-growth floor

Why a +91% reading calls for interrogation, not celebration

A gap this large is a prompt for questions, and the honest ones are these. First, stock-based compensation: Salesforce issues meaningful equity to employees, and free cash flow ignores that expense. A cash-flow-anchored estimate that does not haircut for SBC overstates what accrues to existing shareholders. Second, the sector multiple question: the P/S method applies a sector-calibrated multiple to Salesforce's revenue - but if the market has durably de-rated mature software, yesterday's sector multiple may flatter today's company. Third, the growth input: the DCF's $511 assumes cash flows keep compounding; the EPV's $85 assumes they never grow again. The truth the market is pricing sits somewhere in that enormous range.

This is the walkthrough where the model's transparency tools earn their keep. The "Why this fair value" panel shows the dispersion-shrink adjustment - when methods disagree this widely, the model automatically pulls the displayed differential toward zero rather than reporting false precision. And the assumption sliders let you impose your own growth and discount inputs and watch the estimate move. A +91% model differential is not a discovery; it is an invitation to find out which assumption is doing the work.

Figures are model estimates computed from public fundamentals under stated sector assumptions, as of June 11, 2026. They are educational illustrations, not investment advice or a prediction of future prices.