Salesforce.com is a Great Company with a P/E in the Clouds

Stock (Symbol)

Salesforce.com (CRM)

Stock Price

$70

Sector

Technology

Data is as of

February 29, 2016

Expected to Report

May 18 – May 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 a phenomenal company with a really high P/E. 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 $6.6 billion in revenue, up from $5.4 billion a year-ago and $4.1 billion in 2014. Salesforce updates its services and offering, and these improvements help its customers so much they continue to buy more. Salesforce started a marketing cloud in 2013 to create intelligent email campaigns, and in 2014 focused on analyzing customer data, with dashboards linked to client data to get presentations immediately. In 2015 Salesforce moved into financial services, where the cloud market is expected to grow 25% a year the next three years. Salesforce is state of the art and in my opinion head-and-shoulders above its competitors. But this company has an estimated long-term growth rate of 29% and P/E of 69. The P/E is always high, thus we should try to get the stock on a dip if we can.

One Year Chart

Salesforce gave me the dip I was looking for last qtr, but I didn’t bite as a couple other tech companies put out profit warnings and I wanted to see if CRM would put out a good qtr. In the end it did, but the stock jumped on the news and then was no longer on a dip. Last qtr CRM’s numbers were very good but not great. Profits grew 34% on a 25% increase in sales. The company met earnings estimates (didn’t beat) and 2016’s estimates increased just 2 cents from $0.99 to $1.01. But profit Estimates for the next 4 qtrs look great: 44%, 32%, 24% and 42%.

Fair Value

My Fair Value on CRM for 2016 is 75x earnings, which is $76 for 2016. 2017’s Fair Value is $98.

Bottom Line

Salesforce.com is one of the world’s best growth stocks, and I should have invested in CRM years ago. But right now with the stock close to its highs, I’m hoping CRM will pull back this Spring/Summer and give me a better price to get in at. Salesforce.com is at the top of my radar.