Force majeure: n., an unexpected event, the appearance of which renders contractual obligations moot. (NYSE:CRM) Majeure. Also a noun. And as demonstrated by yesterday's earnings release, a noun so unexpectedly successful that its appearance threatens to render the PC-based software industry moot.

As you have probably heard by now, walloped Wall Street's estimates yesterday evening with its fiscal second-quarter 2010 earnings report. In the teeth of the fiercest recession in recent memory, salesforce turned in:

  • 20% sales growth and 113% earnings growth,
  • expanded its customer base by 32% year over year,
  • grew its operating margin by more than 50% (320 basis points),
  • and generally left the skeptics speechless.

In fact, I rather suspect that salesforce left some of its fans speechless. Earlier this month, I described how two of Wall Street's best and bravest analysts went out on a limb and upgraded the on-demand software maker. Both Lazard Capital Markets and Morgan Stanley (NYSE:MS) gave salesforce high marks. But Lazard predicted only 14% sales growth this year, while Morgan worried pointedly over the potential for Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL) to stymie salesforce's growth.

Not so fast, Hoss
To which salesforce replies: "Pshaw!" After crunching his year-to-date numbers, CEO Marc Benioff predicted that by year-end, his company could manage nearly 19% total revenue growth. Which just goes to show it's hard to resist "the -force."

But does a single superb quarterly report justify buying salesforce today? I'd love to tell you "yes," but the fact is that yesterday's news -- and the resulting rise in stock price -- gives me pause. You see, as great as the headline numbers looked, down on the cash flow statement I see trouble a-brewing with the bull argument for salesforce.

With cash flow down in Q2, and capital expenditures up, salesforce's cash generation skipped a beat. Free cash flow has now improved only 11% year over year during the first six months of the fiscal year, leaving salesforce with just $180 million in trailing free cash flow. Divide that into the company's now-mammoth $6.6 billion market cap, and we're now looking at a price-to-free cash flow ratio north of 36.

On one hand, if salesforce lives up to expectations and grows at north of 40% per year for the next five years -- fine and dandy. On the other hand, that's twice the growth pace expected of Internet wunderkind companies like Google (NASDAQ:GOOG) or more mature Yahoo! (NASDAQ:YHOO). It's four times as fast as salesforce has grown its free cash flow so far this year.

Call me a cheapskate, but at this price, I find shares easy to resist.

Do the hypergrowth investors at Motley Fool Rule Breakers agree that salesforce is getting a bit big for its britches? Or do they see further prospects for growth ahead? Sign up for your free 30-day trial, and find out.