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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
salesforce.com (NYSE:CRM) shareholders are all a-chatter over the stock's latest upgrade -- and the share-price gains that came with it. On Thursday, Wall Street Wise Man Caris & Co. weighed in with a bullish "buy" rating on the stock, sending salesforce.com shares up 2% on a generally flat day for markets worldwide.

What got Caris feeling so happy yesterday? In a word: "Chatter," salesforce.com's new Facebook-esque software package for intra-corporation collaboration. After attending salesforce.com's Chatter rollout in San Francisco on Wednesday, Caris came away impressed with the "cross-selling opportunity within CRM's large base of sales force automation users" -- 68,000 customers and growing, at last report. Opined Caris: "While it is too early to suggest a fundamental shift in enterprise collaboration, the rampant growth of social networking in the consumer market and its potential for the enterprise should not be ignored."

Yet with the stock selling for north of 116 times earnings, the questions naturally arise: Is Caris coming too late to this party, picking the stock at its peak? Just how much "potential for the enterprise" does salesforce.com need to justify such a lofty stock price?

Let's go to the tape
Let me address these questions in order. First, while this week's upgrade was technically the first time Caris has called salesforce.com a "buy," in fact, the banker has been bullish for quite some time. Caris first recommended the stock way back in August of '06 and has maintained an "above average" rating on salesforce.com since November. So far, it's been right in that assessment, beating the market's returns.

But that's hardly surprising. You see, while Caris is perhaps best known for its more numerous recommendations in the Semiconductors and Semiconductor Equipment sector -- recommendations that include sizeable losses on name-brand equities like Intel (NASDAQ:INTC) and Applied Materials (NASDAQ:AMAT), I might add -- Caris has enjoyed much more success with its Software picks:

Companies

Caris Says:

CAPS Says (out of 5):

Caris' Picks Beating (Lagging) S&P by:

Oracle (NASDAQ:ORCL)

Outperform

****

(7 points)

TiVo (NASDAQ:TIVO)

Outperform

**

28 points

Quality Systems (NASDAQ:QSII)

Outperform

*****

62 points (two picks)

Taleo (NASDAQ:TLEO)

Outperform

**

228 points (!)

In fact, across the 14 separate up/down calls Caris has made in the Software sector over the past three years, this banker is batting 0.714 on its picks. That's a simply stunning record of success, and to make matters even better, Caris' software picks are beating the market by a combined 420 percentage points.

Yowza!
Yowza indeed. So you can see why I'm pretty optimistic that Caris will be proven right on this pick in particular. Although salesforce.com's price-to-earnings ratio of 116 looks scary in the extreme, if you dig a little deeper I think you'll agree that the valuation on this stock is actually quite a bit more reasonable than that.

Consider: Over the past 12 reported months, salesforce.com has generated a combined $196 million in free cash flow -- more than two-and-a-half-times what GAAP accounting allows it to report as "profits." It also means that the stock sells for 43 times free cash flow -- a much more reasonable valuation than the triple-digit P/E suggests.

Foolish takeaway
Now I'm still not convinced that this valuation is cheap enough to justify buying into the stock. Analysts on average believe salesforce.com will grow at a nearly 36% clip over the next five years, which in and of itself is spectacular -- but which growth rate seems priced into the stock at today's multiple.

Granted, salesforce.com could exceed those estimates (as it has in three of the past four quarters), but to my Foolish eye, the odds don't favor gambling on the stock at these levels. As great a business as salesforce.com is, and as superb a software picker as Caris has proved itself to be, there's just not a lot of margin of safety in today's stock price.

My advice: Keep your powder dry. Wait for a market correction or an investor overreaction to salesforce.com's earnings (due out next week, by the way.) Call it a hunch, but I suspect that if you are patient, you'll get a chance to own this superb stock at a significantly better price.

Fool contributor Rich Smith has no position in any of the stocks named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 730 out of more than 150,000 members. Intel is a Motley Fool Inside Value recommendation. Salesforce.com is a Motley Fool Rule Breakers selection. Quality Systems is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a "buy calls" position on Intel. The Fool owns shares of Oracle and has a disclosure policy.