1-Star Stocks Poised to Plunge: salesforce.com?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, customer relations management software specialist salesforce.com (NYSE: CRM  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Salesforce's business and see what CAPS investors are saying about the stock right now.

Salesforce facts

Headquarters (founded) San Francisco (1999)
Market Cap $20.2 billion
Industry Application software
Trailing-12-Month Revenue $2.6 billion
Management Co-Founder/Chairman/CEO Marc Benioff
CFO Graham Smith
Return on Equity (average, past 3 years) 2.6%
Cash/Debt $1.1 billion / $558.3 million
Competitors Microsoft
Oracle
SAP

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 49% of the 1,832 members who have rated Salesforce believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, reeshau, wrote that the Salesforce bear case all boiled down to price:

I'm not saying the product is bad or that I think the company will fail. But pick your valuation multiple, and this company is living back in 1999, not 2012. Start with the fact that they have a GAAP loss. That means we're dealing with non-GAAP numbers, picked by management. But even with those, we are talking about an [83 forward P/E], 31 times free cash flow, and a PEG of 3.5. Yikes! I don't know when it will fall, but the valuation has to come back down to earth sometime.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Salesforce, Microsoft, and Oracle. Motley Fool newsletter services have recommended buying shares of Salesforce and Microsoft, as well as creating a synthetic covered call position in Microsoft. A separate Motley Fool newsletter service has recommended shorting Salesforce. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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  • Report this Comment On September 04, 2012, at 5:44 PM, Decoy0527 wrote:

    The CEO and Cramer endlessly talk about non GAAP earnings, and never, never talk about GAAP earnings. There are red flags flying all over CRM. This company reminds me of the internet stock bubble days. Fundamentals just do not add up. It might be a good company, even a great company, but even its optimistic projected earnings do not add up to its current share price.

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