Oracle (ORCL) reported poor quarterly results last week, and the stock got punished 12% on the news. But the real news was weak software sales for Oracle is likely an indicator other software companies will have trouble growing too — namely Salesforce.com (CRM).
One-Year Chart
The ORCL news sent shares of CRM down through $100. This caused CRM to breakout to the downside. The stock had not closed below $100 since October 2010.
CRM’s numbers have been poor this year, though analysts didn’t seem to mind much. I did, I avoided the stock.
I like Salesforce.com and would love to someday own the stock, but the P/E is still 60, and with projected profit growth of 29% the next two quarters, this stock is still extremely overvalued.
What makes things tough on CRM stock is the company is lowering earnings estimates. So the 29% growth might not really be coming.
Fair Value
For more than a year I have considered CRM to be a stock worthy of a P/E of 40. That’s around a 50% drop from here. CRM has momentum going into 2012 — downward momentum.
Bottom Line
Salesforce.com stock wasn’t a good investment even before the bad Oracle news came out. Just last month CRM reported results, then the stock fell because deferred revenue was light. A slowdown in software sales will likely mean CRM earnings estimates getting reduced once again. At this point I’m not close to buying CRM.
