'Tis the season for mid-year 2007 earnings releases on Wall Street. Yet ever the rule breaker, on-demand software pioneer salesforce.com (NYSE:CRM) will once again skip ahead of the pack tomorrow. Its afternoon earnings release will discuss fiscal Q2 2008 results.

What analysts say:

  • Buy, sell, or waffle? Twenty-nine analysts still follow salesforce.com. Fifteen of them rate the stock a buy, 12 a hold, and two a sell.
  • Revenues. On average, they expect to see 47% sales growth to $173.6 million.
  • Earnings. Break-even profits are anticipated.

What management says:
Now, this is interesting. Remember how, back in May, I led off this section of the Foolish Forecast with the news that salesforce.com elevated Nuance Communications (NASDAQ:NUAN) veteran William Dewes to the post of "principal accounting officer" from his previous post as "chief accounting officer?"

Well, as of July 18, Dewes no longer crews that post -- he's resigned from salesforce.com. And while management made the obligatory assurances about how "the resignation is for personal reasons and does not involve any controversy or disagreement with the Company regarding the Company's financial reporting or accounting policies, practices or principles," a Fool has to wonder, right?

I mean, sure, salesforce.com makes good software and all, and it has an impressive client roster running from Merrill Lynch (NYSE:MER) to ADP (NYSE:ADP) to Cisco (NASDAQ:CSCO). Sure, it seems to be buddying up closer and closer to Google (NASDAQ:GOOG), and may even be looking like buyout bait from Mountain View's vantage point. But if things are going so swell, why would Dewes be jumping ship -- and at the same time as insiders are busy selling off 91.4% of their salesforce.shares (over the last six months)?

What management does:
And yet, on the surface at least, things are just starting to look good at salesforce.com. Rolling gross margins may have ticked down last quarter, but operating margins appear to have stabilized, and the net, too, is beginning to revive.

Margins

1/06

4/06

7/06

10/06

1/07

4/07

Gross

77.9%

77.1%

76.9%

76.9%

77.2%

77%

Operating

7.5%

7.4%

7.5%

7.3%

7.2%

7.3%

Net

9.2%

6.8%

4.7%

1.3%

0.1%

0.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Moreover, as I mentioned last quarter, the GAAP numbers are just the beginning of the good story at salesforce.com. Free cash flow is getting stronger and stronger, with salesforce.com cresting $100 million in cash profits over the last four quarters.

I have to tell you, it doesn't make a whole lot of sense to this Fool. As bad as the P/E ratio looks -- 3,638 times earnings? Now come on, really? -- this company looks a whole lot more reasonably priced when valued is based on its cash profits. Sure, the price-to-free cash flow ratio looks pricey at about 50 times, but if salesforce.com can keep on growing its cash profits at its recent 36%-per-year rate, that valuation is going to look a whole lot cheaper pretty soon.

So to repeat: Why are insiders selling, and why is the top accounting cop jumping ship just when things seem to be turning a corner? Perhaps we'll find out tomorrow.

Is it time to grab salesforce.com by the horns, or is this stock ripe for bear-baiting? Watch two of our top Fools duke it out in:

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy is available on-demand.