The news is out: salesforce.com
- There was 22% revenue growth in the fourth quarter.
- Customer acquisition is up by 31%.
- Per-share profits rose by 41% for the quarter and 82% for the year.
- Free cash flow climbed by 29% to $217 million.
Superb news. But if you're surprised at the market's reaction … well, you shouldn't be. Previewing what we wound up seeing yesterday, I gave investors the following advice last week:
I'm still not convinced that this valuation is cheap enough to justify buying [salesforce.com]. Analysts on average believe salesforce.com will grow at a nearly 36% clip over the next five years, which … seems priced into the stock at today's multiple. …
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."
Hold your applause
Now, if you're worrying that this will be an "I told you so," column -- don't. I was right last week, yes. But honestly, salesforce.com's overvaluation was so obvious that it wasn't all that tough of a call. Our dilemma today is a bit more difficult: Now that salesforce.com has dropped in price, we need to ask whether it's dropped enough to justify your buying in.
I'd argue it has not -- and that you should not.
My thinking here basically mimics what I told you about Brocade
Unfortunately, salesforce.com disappointed the Street yesterday, predicting sub-consensus 16% to 17% growth in 2010. That's a slowdown from yesteryear, and it's going to force Wall Street to walk back its growth assumptions going forward.
How long of a walk Wall Street takes remains to be seen. But the farther they walk, the more overvalued salesforce.com will look. My advice: You've waited this long to own salesforce.com. Wait a little longer. We'll reach an attractive price eventually.
Is there such a thing as a growth stock selling for an attractive price? There is. They're here.
What's the secret to finding fast-growing companies that dominate their competitors -- in emerging industries like software-as-a-service? Click. Read. Find out.
Fool contributor Rich Smith has no position in any stocks named above, but Microsoft is a Motley Fool Inside Value pick and Motley Fool Options has recommended a diagonal call position on it. Google and salesforce.com are Motley Fool Rule Breakers recommendations, and the Fool owns shares of Oracle. The Motley Fool has a disclosure policy.