Gabelli, Fisher Increase Positions in Salesforce.com
Salesforce.com Inc. (CRM) is a leading provider of on-demand enterprise applications. The company has an excellent customer relationship management offering, which is recognized by clients. The stock has declined 25% on a year-to-date basis.
Catalysts
The company has done an excellent job in its customer relationship management software by reducing costs. However, the annual gross margin has been lowering because of its market share expansion and new business models. The margin has been in long-term decline, as the average rate of decline per year is 1.3%.
Warning! GuruFocus has detected 2 Warning Signs with CRM. Click here to check it out.
The intrinsic value of CRM
Moreover, we can highlight the impact of its cross-sell strategy, in which about three out of four clients purchase more than one of its products (for example, sales cloud plus service cloud). Although the company has developed an effective strategy regarding those products, the firm must continue developing the brand and enhance the chances to enter into other markets such as marketing automation.
The policy of investing in new technology has its bad side when calculating the returns on capital that could be hurt, and it is a bad sign for growth in the long term. This could also be affected by fierce competition from peers like Adobe (ADBE) or Oracle (ORCL).
Looking at the revenues by geography, the U.S. accounted for almost 70% of fiscal 2015 revenues, while international markets accounted for the rest. Markets in Europe and Asia Pacific are the most important.
Stock price evolution
The stock is selling at a discount, trading close to the one-year low. The P/B ratio of 8.18x is close to the five-year low of 8.18, and the P/S ratio of 7.98x is close to the five-year low of 7.98.
Revenues and earnings
Revenues for the third quarter stand at $1.71 billion, up from $1.38 billion in the same quarter a year ago. Despite this increase, the company lost 4 cents per share, though this is an improvement from losses of 6 cents per share in the third quarter of 2014. For this year, the Street expects an improvement in earnings to 75 cents.
Bullish sentiment
In December, Mario Gabelli (Trades, Portfolio) initiated a new position in the stock with 9,950 shares, while Ken Fisher (Trades, Portfolio) did the same, upping his stake by 195% to 13,593 shares.
Final comment
I feel comfortable with the growth in revenues and earnings and with significant investments that are larger than the average competitor. Although the business model in the industry can change quickly, we believe the company can achieve technological advancements in the future.
Disclosure: As of this writing, Omar Venerio did not hold a position in any of the aforementioned stocks.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 2 Warning Signs with CRM. Click here to check it out.
The intrinsic value of CRM
