Salesforce.com a ‘Bubble’ Stock: Barron’s
Updated · Jan 25, 2011
Salesforce.com (NYSE: CRM) pioneered the market for cloud computing and software as a service (SaaS) with its online customer relationship management (CRM) service, and the company has been richly rewarded by investors as a result.
But Barron’s thinks investors may have gone a little too far.
In an article over the weekend, Barron’s challenged the company’s lofty valuation, noting that “any hiccup now could send the shares tumbling hard, especially if investors analyze the company’s sharp rise in expenses and the continuously growing number of diluted shares outstanding.”
Barron’s noted that the magazine has been wrong on Salesforce before; the company penned a negative article on the online CRM leader back in 2007, when the stock traded at $40 a share. Shares of Salesforce were down 3.3% to $127.83 today on the Barron’s report.
Even factoring out $100 million in annual stock option expenses, Salesforce trades at nearly 100 times next year’s earnings, Barron’s said, and company executives aren’t buying the stock. The S&P 500 currently trades at about 14 times earnings, according to Yahoo Finance, but Salesforce’s growth rate is three times greater than the broad market.
Salesforce has grabbed the early lead in the cloud CRM market, Barron’s acknowledged, but the company so far hasn’t had much success outside the CRM market, and rivals like Oracle (NASDAQ: ORCL), Microsoft (NASDAQ: MSFT) and SAP (NYSE: SAP) are planning their own cloud computing offensives.
Paul Ferrill has been writing for over 15 years about computers and network technology. He holds a BS in Electrical Engineering as well as a MS in Electrical Engineering. He is a regular contributor to the computer trade press. He has a specialization in complex data analysis and storage. He has written hundreds of articles and two books for various outlets over the years. His articles have appeared in Enterprise Apps Today and InfoWorld, Network World, PC Magazine, Forbes, and many other publications.