Sometimes unloved stocks are good stocks that have just rubbed investors the wrong way, and actually represent great investment opportunities. Quite often, though, unloved stocks are unloved because there is something very wrong with either the stock or the company behind the stock.
In the Motley Fool's CAPS community stocks are rated on a scale of one to five stars based on the ratio of outperform and underperform ratings given to them by CAPS members. Stocks with the worst ratios end up with a one-star rating -- which is the CAPS equivalent of a flashing red warning beacon.
One of the stocks that has landed that dreaded one-star rating is salesforce.com (NYSE: CRM), a leader in providing on-demand software that helps companies keep track of their customers.
To get a better idea of why salesforce is so unloved, let's take a look at how it stacks up against other companies in the software space.
|
Company
|
TTM Net Income Margin
|
TTM Return on Equity
|
NTM Price-to-Earnings Ratio
|
CAPS Rating
(out of 5)
|
|
salesforce.com
|
4.6%
|
8.5%
|
61.9
|
*
|
|
Adobe (Nasdaq: ADBE)
|
21.9%
|
16.3%
|
19.2
|
****
|
|
Autodesk (Nasdaq: ADSK)
|
2.7%
|
4.6%
|
23.1
|
****
|
|
Citrix Systems (Nasdaq: CTXS)
|
9.6%
|
7.9%
|
17.9
|
***
|
|
Intuit
|
14.3%
|
19.6%
|
14.4
|
***
|
Source: CAPS and Capital IQ, a division of Standard & Poor's.
TTM = trailing 12 months. NTM = next 12 months.
The table above makes it pretty obvious that not only do salesforce's profitability levels lag many other software companies', but the stock also carries a much higher valuation. And it's not as if CAPS members have sworn off software altogether, as both Adobe and Autodesk, not to mention the much larger Oracle (Nasdaq: ORCL), have been given four-star ratings.
But the story may not be quite so straightforward. Reviewing the company's first quarter back in May, fellow Fool Rich Smith suggested that Wall Street (and apparently CAPS members) is missing the point on salesforce, and said in no uncertain terms that the stock is a buy.
So why are CAPS members so pessimistic? Let's take a look at what CAPS All-Star joker245 had to say when giving the stock a thumbs-down in April:
The stock price is down almost 50% in the last year and the P/E is still over 100. Clearly, the sales aren't coming and the valuation is still too high. And then you look at the insiders blowing out their positions. This has a thumbs down written all over it.
Now I'm going to toss the ball in your court. Is salesforce a stock worthy of a rock-bottom rating? Or has the CAPS community overlooked the company's potential? Head over to CAPS and let the 135,000 community members know what you think.
And if it feels good to jab your thumb down on a stock, you may want to check out Amazon.com (Nasdaq: AMZN) and Overstock.com (Nasdaq: OSTK), both of which have been out of favor among salesforce bears.
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