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Salesforce: An Attractive Long-Term Stock

There are several measures that can be taken in coming up with an informed decision on whether to buy, sell or hold Salesforce.com (CRM) stock and for how long. Only a few of those are critical enough to change the investor’s mindset in decision making. Here we focus on those critically important measures that you need to know to invest in Salesforce.com stock.

To begin with, we analyze the Salesforce.com dividend both trailing and forward annual rate and yield. The company has not distributed any dividends to the stockholders over the last ten years. This is because of the company’s focus on reinvestment into the strategy plans to grow and keep pace with the giants of the industry. In this case the forward annual dividend rate and yield remain to be non-applicable thereby creating a rather unimpressive future concerning this measure.

The impressive returns on Salesforce.com stock over time create a very bright future for the investors looking for capital gains. The return on Salesforce.com stock for the last month stands around 15%, with the trailing 12-month figure pegged at over 40%. This indicates why the stock has given the investors returns of over 400%, making it one of the best investments in the industry.

The company has been focusing on reinvestment, thereby putting back all the profits earned, however small, into the strategy plan. Over the last three years, 2009, 2010 and 2011, the company reported net income attributable to common shares of about $43 million, $80 million and $64 million respectively. However unimpressive this might be, compared to the industry leaders Salesforce.com has maintained a very healthy return on its stock, giving a good reason for stockholders to smile from this investment.

The company’s cash flows are also a clear indication that there has been a lot of reinvestment with less activity in the financing activities. In 2010, the company recorded cash flow of about minus $587 million, with much of this being because of heavy investment in business strategy and assets, which was in the region of over $1 billion.

How are competitors faring?

The industry that Salesforce.com operates in is one of the most competitive and comprises of world multinationals such as Microsoft (MSFT),Intuit(INTU), SAP AG (SAP), Oracle (ORCL) and Adobe Systems (ADBE). These are the main competitors of Salesforce.com and all have various strengths and weaknesses, which Salesforce.com has dealt with well. As expected, Microsoft is the industry leader in terms of market capitalization.

While Microsoft has been enjoying consistent growth in profits, Salesforce.com cannot boast of the same and indeed the difference in profit margins is enormous. While Microsoft has a profit margin of about 34%, Salesforce.com can only boast a mere minus 0.51%. Other players such as SAP AG, Oracle, Intuit and Adobe all have positive profit margins of around 24%, 25%, 16% and 19%, respectively.

Promotions and benefits for company employees

The employees are always crucial when it comes to defining company success. This is achieved by first getting the best for the right positions and secondly, through continuous motivation through benefits, promotions and bonuses. Salesforce.com opened an opportunity that allows the employees to own company stock through the employee share options last year. This will help the employees give their best as they continue to feel a part of the organization. This is bound to bear great returns for the stock now and in the future.

The Analyst’s Objective Verdict

Based on my analysis of Salesforce.com stock, I expect that in the year 2012, there will be no dividend issued and in the same way, no dividend yield for the year. In two to three years, I expect the company to start giving dividends, which will also be a course and effect of a change in dividend policy. Nevertheless, investors in Salesforce.com stock continue to enjoy more and more returns on the stock year in and year out, which gives them a reason to continue holding the stock. This means that the stock remains attractive despite issuing no dividends over the last decade.

About the author:

InvestmentUnderground
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

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Rating: 2.5/5 (20 votes)

Comments

guruburu
Guruburu - 2 years ago
The only thing I can say is that I am happy that there are participants like you on the market.
pravchaw
Pravchaw premium member - 2 years ago
Touting CRM at gurufocus is as appropriate as a streaker at a clergyman's funeral.
waup7707
Waup7707 - 2 years ago
I guess you're suffering from financial delusion.

Please leave your comment:


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