Valuation in the Clouds

Stock (Symbol)

Salesforce.com (CRM)

Stock Price

$77

Sector

Technology

Data is as of

December 21, 2015

Expected to Report

Feb 23 – Feb 29

Company Description

salesforce.com, inc. is a provider of enterprise cloud computing solutions that include apps and platform services, as well as professional services. The Company focuses on customer relationship management (CRM). The Company offers six core cloud services that include sales force automation, customer service and support, marketing automation, community management, analytics and a cloud platform for building custom applications. The Company offers consulting, deployment, training, implementation and integration services to its customers to facilitate the adoption of its cloud solutions. The Company delivers its solutions as a service through all the Internet browsers and on mobile devices, on a subscription basis, primarily through its direct sales efforts and indirectly through partners. Source: Thomson Financial

Sharek’s Take

Salesforce.com (CRM) is an amazing company, and for many years has garnered a very high valuation from investors. The world’s leader in customer relationship management (CRM) software, Salesforce connects more than 150,000 clients to their customers via the internet and stores this customer information in the cloud. Last year Salesforce did $5.4 billion in revenue in just its 16th year in operation — faster than any other enterprise software company — and ended the year the 6th largest software company in the world. Salesforce continuously grows by leaps and bounds, and continues to add more services. Salesforce’s Service Cloud can handle a company’s customer service department. It introduced marketing cloud in 2013 to create intelligent email campaigns. 2014 was the year of analytics to analyze customer data, with dashboards linked to the CRM to get presentations immediately. This year Salesforce moves into financial services, where the cloud market is expected to grow 25% a year the next three years. But I recently was contacted by a Salesforce sales rep who didn’t even offer a financial services product to me. The problem with this stock is it always has a high P/E. Right now the P/E is 78. But profits grew 50% last qtr. In the end this stock should be bought on a correction. It’s a must-own growth stock for me and I will try to acquire shares on a dip.

One Year Chart

Fantastic qtrly profit growth along the bottom, and estimates look solid as well. Last qtr CRM was expected to have 36% profit growth and beat the street in delivering 50%. Sales increased 24%. This company may have the ability to grow profits 40% to 50% in 2016, and this could be a decent valuation of 78x earnings when that’s considered. Still, you can see this stock does dip at times, and I’ll try to get in on the next pullback.

Fair Value

My Fair Value on CRM for 2016 is 75x earnings, or $74 a share. The stock is in the high-70s today. Do note my 2017 Fair Value is $96, and I feel that will increase as CRM has been upping annual estimates.

Bottom Line

This stock has a tremendous ten-year track record, but do note profits have fallen a couple of times in the decade.

Salesforce.com is a premier growth stock with a valuation in the clouds. As a money manager I feel it’s a must-own, and will pay close attention to the stock in 2016 to attempt to get it on a dip in price. Note this stock has gi ven investors opportunities from time to time.