) has had a great run in recent years, riding enthusiasm for its
cloud-centric customer relationship management product. Customer
relationship management is also called CRM, which explains why
the company trades under that ticker. Salesforce.com went public
just under ten years ago in 2004 and is today ranked the most
innovative company in America by Forbes Magazine, as well as
being an S&P 500 component.
As one of the first companies to successfully move enterprise
software off-site, Salesforce.com garnered a lot of attention.
The company was also known to feud, for a time, with Oracle (
)-one of two dominant companies in the enterprise software
business, along with SAP (
). Due to semi-permanent consumer dislike of extant enterprise
software solutions, Salesforce.com garnered a certain degree of
public support, though the company evidently felt, in 2013, that
the time had come to cash that support in, and it signed a nine
year contract to use Oracle software to power its own
Salesforce.com has been a revenue juggernaut since it went
public, with revenue rising every year from 2005 to 2014,
climbing from $176 million to $4.071 billion-an increase of more
than 2,200 percent. That is an important consideration, but not
the only one. Much of the new revenue has come from acquisitions,
which the company has been making seemingly without regard to
expense, and this has left the balance sheet a bit froggy. The
company's debt ratio is 0.66; I'll accept that from a mining
stock, but for a cloud computing company, it's too high. Rival
), for comparison, has a debt ratio of just over 0.5.
Salesforce.com has not been profitable since 2011, and
analysts are forecasting net Earnings per share of just $0.04 in
FY 2015 (the company's FY 2015 ends on January 31 of that year),
which, at the current stock price of $57.17 gives the company an
end of FY 2015 P/E ratio of 1,429. Once again, that's acceptable
in certain companies at certain times, but Salesforce.com is a
mature enough company that it should be focusing on making money.
I can understand why they might prefer, instead, to try to buy
their way into being a social media company-enterprise software
is grueling business to be in-but in spite of that, I need to see
this company make money on its core business before I'll believe
that its downward slide is over.
Due to the extraordinary difficulties of operating in the
enterprise software solutions market, the overhead of maintaining
their server farms, the fact that they may have bought a world of
trouble by using customer-hated Oracle software, the stocks
overwhelming downward momentum and the lack of any clear plan for
turning things around, the possibility of any significant,
near-term rise in the price of CRM stock appears remote.
Chart courtesy of
I seek to capitalize on this weakness with a bear-call credit
spread. Look at the May 62.5/67.5 bear-call spread for at least a
$0.78 credit. Use limit orders. This trade has a target return of
18.5% over 96 days, which is an annualized return of 124%, (for
comparison purposes only). CRM stock has to rise 9.5% to cause a
problem. Be aware that this is an aggressive trade, best
undertaken by investors with diverse portfolios and high
tolerance for risk.