How High Can salesforce.com Fly?

Shares of salesforce.com (NYSE: CRM  ) hit a 52-week high today. Let's look at how it got here and see whether clear skies are ahead.

How it got here
Salesforce is a quintessential cloud-computing stock, plain and simple -- one you need to know about. Its software-as-a-service, or SaaS, model has helped it deliver market-thumping returns for years, to the glee of Rule Breakers subscribers who may have been fortunate enough to buy it when it was originally recommended in February 2009 near $27.

It recently delivered a strong fourth-quarter earnings release, with revenue jumping by 38% and full-year 2013 revenue guidance seeing a boost to a range of $2.92 billion to $2.95 billion. The company has been making strides by adding a social twist to its enterprise software offerings.

Salesforce's cloud-driven rally shows no sign of stopping as the mobile revolution continues to accelerate.

How it stacks up
Let's see how Salesforce stacks up with some of its enterprise software peers.

CRM Chart

CRM data by YCharts

Let's add in some more fundamental metrics for additional insight.

Company

P/S (TTM)

Sales Growth (5-Year Rate)

Net Margin (TTM)

ROE (TTM)

salesforce.com 9.6 35.5% (0.5%) (0.8%)
Oracle (Nasdaq: ORCL  ) 3.9 19.9% 26.3% 24.5%
SAP (NYSE: SAP  ) 4.4 8.7% 24.2% 30.6%
Microsoft (Nasdaq: MSFT  ) 3.6 9.6% 32.6% 41.7%

Source: Reuters. TTM = trailing 12 months.

Clearly, Salesforce is not for the faint of heart. It sports gut-wrenchingly high multiples, and its GAAP results even turned up a net loss of $0.09 per share this last year. The company is rather generous with sock-based compensation for insiders, which is typically excluded in the non-GAAP results that the Street follows.

On a non-GAAP basis, Salesforce earned $1.36 last year. The takeaway is that Salesforce's underlying business is extremely robust, and it has growth rates to prove it. Truly disruptive Rule Breakers can sport premium multiples relative to traditional incumbents, and Rule Breaking Fools think these stocks deserve it.

What's next
People tend to either love it or hate it, but that hasn't stopped it from beating the market. While one of our Foolish services has even recommended a bearish trade, it's making fellow Fool Tim Beyers rich in his Big Idea Portfolio too. We Fools are a motley bunch, aren't we?

I think this classic Rule Breaker is set to keep delivering. Furthermore, I'm going to give salesforce.com an outperform CAPScall today alongside my bullish words.

Interested in more info on salesforce.com? Add it to your Watchlist.

Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft and Oracle. Motley Fool newsletter services have recommended buying shares of salesforce.com and Microsoft, creating a bull call spread position in Microsoft, and creating a bear put spread position in salesforce.com. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On April 13, 2012, at 8:15 PM, Quaker08 wrote:

    "The company is rather generous with sock-based compensation for insiders, which is typically excluded in the non-GAAP results that the Street follows."

    I don't mind sock-based compensation, at least it doesn't dilute shareholders ;)

  • Report this Comment On April 13, 2012, at 8:40 PM, Mega wrote:

    "On a non-GAAP basis, Salesforce earned $1.36 last year. The takeaway is that Salesforce's underlying business is extremely robust, and it has growth rates to prove it."

    As usual, my takeaway is that CRM is flat out lying about the suitability of their non-GAAP earnings metric.

  • Report this Comment On April 14, 2012, at 11:17 PM, macadamian wrote:

    You say ... "Salesforce is a quintessential cloud-computing stock, plain and simple -- one you need to know about."...

    Salesforce is not terrible software... I know, I was a customer. Please though, don't confuse salesforce with "cloud computing".

    Salesforce is trying to tell you that they are the ultimate cloud computing stock, when in fact they

    really have very little to do with cloud computing (what Ellison says is correct):

    http://arstechnica.com/business/news/2011/10/larry-ellison-u...

    Salesforce is as much a "cloud computing" company as GMAIL is. For example, GMail is a great software for email, just as Salesforce is a great software for Customer Relations Management.... and, similarly, both are hosted in the cloud.... but that is where the story ends.

    Please note the distinction here ....

    This would be like me creating a new Motely Fool site (called MotleyFoolCloud.com) and going to say (i) Amazon Cloud Services or using say (ii) VMWare or maybe (iii) Rackspace Cloud etc to host it in the cloud through a virtualized machine.

    As a very last resort I might use :

    (a) Google Biz Apps Cloud or, maybe even:

    (b) Salesforce Apps Cloud via Force.com....

    When people talk about a big cloud computing revolution going on, I really do believe they are referring to (whether they know it or not) innovations such as (i) AmazonCloudServices or (ii) VMWare virtualization technology etc.

    (i) and (ii) are 2 big opportunities as cloud grows (e.g. look at how fast VMWare's Netincome

    & Revenue are growing).

    Clearly though, it would be completely misleading if I told you now that my MotelyFoolCloud.com

    was "THE CLOUD" revolution .... when in fact it was simply just a cool finance site hosted on a cloud technology (i.e. it was not in fact "the cloud" technology). See the difference here?

    So, what is Salesforce exactly? Salesforce is a bunch of different technologies that the company has invested in. However, the only one that makes up the bulk of the money is CRM business.

    So, Salesforce is an awesome CRM service, hosted on a cloud technology, and there is nothing NOTHING revolutionary about that,

    even though, again, it is a good software.

    Now, if you want to show me that Salesforce is some revolution in cloud I would want to see that

    the actual cloud technology they own, like Force.com was generating huge revenues and getting clients that say would have otherwise used an alternative provider such as Amazon or VMWare ....

    Yet, this is simply not the case .... I would almost wonder if they aren't paying Revlon and these few companies they have on all their sales promos as examples of clients using Force.com ....

    This is all a bit misleading of the company I believe, because salesforce.com has zero competitive advantage in the cloud computing sphere.... they are certainly not making much money off of it, and yet they are touting the company as though it is itself "cloud computing". That is just craziness.

    Salesforce, really, is not a lot different than say just a bigger version of Netsuite ...

    and anyone that says they are some revolution or quintessential "cloud computing" stock

    is simply misinformed by the many misleading statements this company puts out about how it is also a revolution in

    (a) "social networking" & (b) cloud computing.

    Yes, they do have services in (a) and (b) via small companies they have acquired, but if you think they are going to make money in these categories that is a VERY uncertain bet you are taking.

    In my opinion CRM is expanding into (a) and (b) and talking all about these categories NOT because they have very much to do with (a) or (b) (in terms of where their revenue is generated) .... but because (a) and (b) are very popular on wallstreet right now.... they get higher valuationes etc, and that's it.

    Don't be fooled because if you look at all the insider sales in this stock, these guys know what is up.....

    For example .....

    http://www.secform4.com/insider-trading/1108524-1.htm

    Just check out the proportion of the total shares CFO (Smith Graham) & President (Koplow) disposed as of 2/3.

    There are of course lots of reasons insiders might sell a stock, however, if you look at the actual figures, these are VERY large portions of their overall holdings.

    Beinoff Ranked #10 in 2011 for biggest Insider Selling, just behind the Google guys:

    http://money.cnn.com/galleries/2011/news/1103/gallery.execut...

    Now, I'm not saying they shouldn't be able to take some money out, but I think there is a difference between say Google's 12B annual Net Income and Salesforce's -11M net income for 2011.....

    Just saying there is a bit of a disconnect it seems between how much Beinoff has made when compared to how profitable or unprofitable Salesforce's business is.

    These guys are just riding a wave and nobody is really looking at what they really do as a company.

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