Of the many new stock positions Saul initiated in the last couple months, Salesforce interested me perhaps the most. for starters, I really like the macro tailwinds in place for cloud-based software companies like Salesforce. I’ve seen interviews with their CEO and was always impressed and so when Saul initiated a position I thought I would take a closer look.
I started by reading two recent Bert Hochfeld articles on the company he had written in recent months. The articles can be found at:
I was a little puzzled though when he said you couldn’t really value the company based on traditional metrics. Now granted, I might be shy because that’s exactly what people about KMI when I bought it at $40 two years ago or so. When I looked over the numbers I also noticed the company’s stock-based comp was HUGE (though, as Bert points out, it is gradually shrinking) and that there are massive differences between their GAAP and non-GAAP earnings. Anyway, here are the basic numbers:
Revenue (millions) Q1 Q2 Q3 Q4 2015 1319 1384 1445 2016 1511 1635 1712 1809 2017 1916 EPS (non-GAAP) Q1 Q2 Q3 Q4 2015 0.13 0.14 0.14 2016 0.16 0.19 0.21 0.19 2017 0.24
Current (2017 Q1 Earnings):
Revenue Growth (millions)
2016 Q1 TTM Revenue = 5659
2017 Q1 TTM Revenue = 7072
Year Over Year Revenue Growth = 25%
EPS Growth (non-GAAP)
2016 Q1 TTM Earnings = 0.57
2017 Q1 TTM Earnings = 0.83
Year Over Year EPS Growth = 46%
P/E (Check Current Price) = 79.89/0.83 = 96.25
1YPEG = 96.25/46 = 2.1
Soooo, by these numbers, which is how I’ve been initially screening companies for the past year or so, would suggest CRM might not be the best place for investing dollars right now. Of course, as Bert says, the best way to value CRM is not through “traditional metrics”.
I guess what I’m asking is, can someone who is invested in Salesforce show me how they are valuing CRM to justify an investment with them?
Also, don’t the high stock-based comp numbers and difference between the GAAP and non-GAAP earnings scare anyone a bit? What about their sky high non-GAAP P/E?
I am seriously asking, because I’m sure I’m missing something, but this just doesn’t seem to be a company that Saul would usually invest in going by these numbers. Thanks.
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