Sky High Valuation

Stock (Symbol)

Salesforce.com (CRM)

Stock Price

$70

Sector

Technology

Data is as of

September 11, 2015

Expected to Report

Nov 17 – Nov 23

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 the world’s leader in customer relationship management (CRM) software, which connects more than 150,000 Salesforce clients to their customers via the internet and stores the 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. This company grows by leaps and bounds, and continues to add more services. Salesforce’s Service Cloud can handle a company’s customer service department. In 2013 CRM introduced its marketing cloud 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. CRM is a great stock, but is always pricey. I have had it on my watch list for years, and continue to watch it go higher. Once again the P/E is around 100, and I feel we should wait for a better entry point.

One Year Chart

CRM logged 24% growth in sales last qtr (28% in constant currency). Profits were $0.19, 46% higher than last year, and a penny over estimates. Annual Profit Estimates for 2015 rose from $0.71 to $0.73. What’s great is qtrly estimates show 36%, 36%, 31% and 26% profit growth ahead — in addition to a 31% estimated long-term growth rate. Great numbers — except for the 96 P/E.

Fair Value

My Fair Value on CRM is 75x earnings. Well, that’s not really what I feel the stock is worth, it’s more like the price I would love to buy in at. Right now that equates to $55 a share. With the stock around $70 I’m probably not going to get that kind of discount. Do note CRM usually has a P/E between 80 and 100. My issue is profit growth could be slowing a bit.

Bottom Line

I’ve tracked this company for so long, and missed so many buying opportunities. Perhaps I’m having trouble swallowing the high valuation. Still, the ten-year chart isn’t perfect, as the company had a few down years. Overall, profits and the stock price have grown 28% per year. Again, 98x earnings seems high for that.

Salesforce.com is one of the most technologically advanced companies in the world. Although the CRM business looks to be slowing there’s growth opportunity in the company’s other new lines — including financial services. This is a stock I have to buy when it corrects, regardless of the valuation.