Salesforce Has Clear Sailing Ahead — After This Qtr

Stock (Symbol)

Salesforce.com (CRM)

Stock Price

$85

Sector

Technology

Data is as of

April 6, 2017

Expected to Report

May 16

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 some great profit growth expected ahead — after this qtr. This qtr’s results will be reduced due to some acquisitions. But after that analysts expect 29%, 46% and 32% profit growth the next three qtrs. And CRM’s P/E of 66 is low for this stock historically, thus the stock could be in the beginning stages of a move higher. 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 software is state of the art and in my opinion head-and-shoulders above its competitors. Not only does Salesforce tackle things like having your clients in a program that has details of when you spoke last and when you need to call them next, it goes way beyond that to address issues like working with a team on projects, or in my instance how much money a client has under management with you and how has the ballance grown (or declined) over time. And all the data is stored at Salesforce (the cloud). Salesforce has an amazing ten-year chart — and has the finest software on the market — but investors have to swallow the fact the stock carries a P/E between 60 and 80 even though profits grow around 35% per year. My Fair Value for next year is $123 per share which is 73x 2018 estimates and a 44% gain from here.

One Year Chart

Last qtr Salesforce delivered 27% sales growth and 47% profit growth, as the latter beat estimates for 32% profit growth. The stock has since broken out, but I’m not confident it will burst higher. 2017 profit estimates rose from $1.28 to $1.29 afterwards, and a penny move higher’s not gonna create excitement. Analysts predict 8%, 29%, 46% and 32% profit growth the next 4 qtrs, with NxtQtr’s reduced due to acquisitions. But that’s fine as profit growth looks to accelerate. Nice Est. LTG of 28% per year and the P/E of 66 makes the stock a value –believe it or not.

Fair Value

Salesforce stock always looks overvalued. But if you don’t overpay you don’t get to own the stock. And the stock’s gone up pretty much every year. It didn’t last year, and I feel CRM has some catching up to do this year. My 2017 Fair Value is $94 which makes the stock undervalued, and the 2018 Fair Value is a plump 44% higher than the recent quote.

Bottom Line

Salesforce’s ten-year chart is a sight to behold. Although CRM is sometimes rocky, the trend here is clearly up. The combination of rapid profit growth expected in 2017 and impressive upside to my 2018 Fair Value means this stock could continue to be a market leader the entire year. This is a fine growth stock to own. CRM ranks 7th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.