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Salesforce.com, Inc (CRM) Profits, Tweets, And Stock Price Climbing

 November 21, 2012 03:22 PM
 


(By Rich Bieglmeier) Salesforce.com, inc (CRM) is blowing up Twitter today as the number of twits is up more than 900%, according to StockTwits.com. All the attention comes compliments of its recent profit report card.

The client relationship management software and app company reported third-quarter earnings of 33, a penny better than the street expected. Sales of $788 million were up 35% and outpaced the consensus top-line estimate of $776.50 million. For the fourth quarter, management offered up guidance that's in line with Wall Street view of earnings of 40 cents on revenue of $828 million.

For fiscal-year 2014, CEO Marc Benioff raised the bar saying, "Given the strong customer response to our next generation social and mobile cloud technologies, I'm delighted to announce that we expect to surpass a $4 billion annual revenue run rate during our fiscal year 2014." That's ahead of analysts' projections of $3.83 billion.

[Related -Netflix, Inc. (NFLX) Q4 Earnings Preview: What To Watch?]

On the profit news, shares are up $11.26 or 7.72% as we type.

The question is how much of the growth is already built into CRM's stock price? Revenue of $4B represents roughly 33% growth from this year's run rate of $3B, and earnings per share are forecasted to be on par with revenue growth. Meanwhile, the stock trades with a forward price-to-earnings ratio (P/E) of 79.10, or nearly twice anticipated top and bottom-line growth.

This P/E to growth premium is reflected in a high PEG ratio of 3.56. For PEG, like in golf, the lower the score the better. It's been our experience that companies with PEG ratios in CRM's range tend to under-perform in the long-run.

[Related -Netflix, Inc. (NASDAQ:NFLX): Can Netflix Trump Amazon.com, Inc. With New Plans?]

At $4 billion, salesforce.com is valued at a little more than five times sales, which is another metric that's too high for iStock's taste.  Across the board, the application software company's trades at higher valuations than it peer group.

The good news is that highfliers can continue to trade at lofty levels for extended periods as long as the company doesn't stumble – see Chipotle Mexican Grill, Inc. (CMG), Netflix, Inc. (NFLX), and many others as examples of both.

It could be a while before CRM trips up. One of the most interesting developments during the third-quarter was the company's strength in Europe. While the continent fades back into recession and most others struggle to find or maintain EU business, revenue in Europe grew 41% on a constant currency basis and 29% in dollars to $134 million.

salesforce.com could be the type of company that actually benefits as economic conditions tighten. Companies use client-relationship software to hold on to their customers by increasing satisfaction. It's a question of which would cost more, CRM software or losing valued customers in tough times?

Overall, salesforce.com is a richly priced stock in our view, and only appropriate for high-risk investors. While shares have reacted positively to earnings, they could struggle near resistance at $160. salesforce.com, inc (CRM) could be a short-term trade candidate should it bypass and close above $160. Beyond that, iStock would have fear in its heart with each passing quarter report, see Chipotle Mexican Grill, Inc. (CMG), Netflix, Inc. (NFLX)…

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(1)
 
11/28/2012 10:00:31 PM
Wouldn't trust in Salesforce just yet... by Brad Hodson
While revenues are up, this is mostly because they are spending less by exchanging stock for paychecks. They're artificially bloating their stock, instead of officially bettering their CRM software UI to get and retain more customers. Their adoption rate is still in the tank with all the rest of the CRM world.
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