I Figured Salesforce’s Numbers Would Look Better Than This

Stock (Symbol)

Salesforce.com (CRM)

Stock Price

$82

Sector

Technology

Data is as of

June 10, 2016

Expected to Report

Aug 18 – Aug 22

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) has been on a tear recently, and bullish comments just pushed the stock to a new high, but the numbers don’t look as good as I expected them to be. Since last qtr CRM stock has gone from $70 to $82, and the P/E from 69 to 86. But this qtr CRM’s fundamentals don’t look as great as I thought they would. First of all the company was expected to make $0.23 last qtr and in fact made $0.24, having 50% profit growth year-over-year but beating the street by just a penny. THEN profit estimates fell. 2016’s estimate is now $0.95, down from $1.01 last qtr. Qtrly estimates also declined and now show 16%, 10%, 32% and 21% profit growth the next 4 qtrs. Part of this is from CRM’s acquisition of DemandWare which hurts profits in the short-term, help in the long run. But when you have a P/E in the 80s it’s nice to have at least 35% profit growth backing it up. Salesforce is the world’s leader in customer relationship management (CRM) software and connects more than 150,000 clients to their customers via the internet and stores this customer information in the cloud. Salesforce is state of the art and in my opinion head-and-shoulders above its competitors.The trick is to buy the stock on a dip. Right now that’s not happening. I think we missed our chance to buy CRM lower and now have to play the waiting game and hope for another correction.

One Year Chart

Last qtr Salesforce grew sales 28% and profits 50%. That’s great when profits grow faster than sales, but now profit growth looks to slow the next 2 qtrs. CRM always has a high P/E compared to its Est LTG. Last qtr the P/E was 69 which I highlighted in green as that was good. Now the P/E is 86 which is high. In retrospect we should have gotten this stock last qtr.

Fair Value

My Fair Value is 75x earnings, which is $71 and around where the stock was last qtr. Now at $82 I think CRM’s gotten a bit ahead of itself. Still, the 2017 Fair Value is $99 which is 21% higher than today’s price.

Bottom Line

Salesforce.com has been one of the worlds best growth stocks for a decade now, and its a shame I’ve never owned it. Looking at the ten-year chart its easy to see the trick with this stock is to buy it on a dip, and that’s what I intend to do once CRM gives me another chance. For now I’ll continue to watch and hope the stock falls back into the low-$70s. Salesforce.com is at the top of my radar.