At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Three days before it releases its Q3 numbers, shares of Salesforce.com
Does Piper know what it's talking about? Past performance may not guarantee future success, but I personally feel more comfortable taking advice from someone with a strong track record. So let's take a stroll through CAPS Land and see what kind of tunes Piper has been playing so far.
Let's go to the tape
Reviewing Piper's CAPS profile, I'm at first inclined to ignore the firm's recommendation. Piper scores a 70.77 CAPS rating, which, while not bad, isn't really the sort of record investors should be paying good money for. Heck, seeing as Piper scores a mere 44% for accuracy, perhaps it should be paying us to take its more-often-wrong-than-right advice. Here's a small sampling of the times we've seen Piper blow it:
Company |
Piper Said: |
CAPS Says (Out of 5): |
Piper's Pick |
---|---|---|---|
OfficeMax |
Outperform |
* |
46 points |
ViroPharma |
Outperform |
**** |
45 points |
LeapFrog |
Outperform |
* |
33 points |
So, how does Piper transform a generally losing record into a performance that places it in the top 30% of investors? By -- every so often -- making a truly brilliant call. For example:
Company |
Piper Said: |
CAPS Says: |
Piper's Pick |
---|---|---|---|
First Solar |
Outperform |
** |
545 points |
JA Solar |
Outperform |
*** |
174 points |
Crocs |
Outperform |
** |
149 points |
Foolish takeaway
Will Salesforce prove to be one of those exceptional recommendations that serve to salvage Piper's reputation on Wall Street? As a matter of fact, it just might be. While most investors -- most sane investors, at least -- will take one glance at Salesforce's 1,163 P/E ratio and shake their heads in disgust, those who can see past the income statement to the cash flow statement may see an emerging growth engine here.
Mind you, I'm not saying Salesforce's trailing price-to-free cash flow ratio of 60 is cheap, exactly. Rather, it's -- how do I put this? -- less obscenely overpriced than first meets the eye.
With most analysts agreeing that this firm will grow its profits at 43% per year over the next half-decade, I can see Salesforce growing into its valuation in time. Can you? Then drop by CAPS and tell us why.