Salesforce.com (NYSE: CRM ) reports second quarter-earnings Aug. 18 after the
market closes. Analysts expect EPS of four cents, a 75% decline from last year.
Revenues, on the other hand, should rise 34% year-over-year to $528.6 million.
It's a mixed bag, for sure, and likely why its stock is up just 1.6%
year-to-date. Regardless of how it does, I don't like this stock. Here are
some reasons why: What You Get for $100,000 Proponents of higher liquor prices
believe raising them reduces excessive drinking. I don't agree. I believe most
people who don't have a drinking problem consume the same amount every month.
If prices are lower, they simply put the savings to use somewhere else in their
budget. How does this relate to Salesforce.com? I believe investors work in
reverse. In most cases, investors tend to commit a specific amount of capital to
buying stock and then do so at an appropriate price. However, if they can get a
bigger bang for their buck, they'll gladly take the extra shares. I look at
Salesorce.com and think: What can I get for my $100,000? At current prices,
approximately 750 shares. For each of those shares I'm paying $71 for a dollar
in future earnings. If I'm a growth investor, I have no problem paying this
multiple because earnings are estimated to increase 27% per annum for the next
five years. Such earnings power deserves a premium multiple. If I'm a value
investor, I'm thinking there must be a better way. I'd rather pay far less
for my dollar in earnings. For the same $100,000, I could buy 583 shares of
Intuit (NASDAQ: INTU ), 906 shares of Oracle (NASDAQ: ORCL ), 618 shares of BMC
Software (NASDAQ: BMC ) and 1015 shares of Adobe Systems (NASDAQ: ADBE ). The
earnings yield for these four stocks is 8.9% 536% greater than Salesforce.com.
A Better Alternative If you want to read a good article about the future of
cloud computing, Andrew Leckey of the Los Angeles Times wrote a good primer July
31 . Salesforce.com is a pioneer in the field, which Forrester Research expects
to grow almost 500% by 2020 to $241 billion. There's no doubt it's
contributed to small-business productivity and cost savings by providing a
pay-as-you-go web-based service. However, I have to think the competition is
going to heat up once the public starts to better understand what cloud
computing actually is. I currently use the free version of Zoho for writing
articles while on the road, and although I'm not a techie, the concept of free
is a powerful one. I've also read Jason Fried's book, ReWork. Fried is the
founder and CEO of 37 Signals, who market Highrise, a Web-based CRM geared
toward small businesses. In addition, Microsoft (NASDAQ: MSFT ) has Azure, and
surely Google (NASDAQ: GOOG ), Apple (NASDAQ: AAPL ), Amazon (NASDAQ: AMZN ) and
Intuit will enter this arena in the future. This doesn't mean Salesforce.com
won't experience some measure of success, just that there's a safer way to
hedge your bet. First Trust introduced the ISE Cloud Computing Index Fund on
July 5 at an opening price of $20. It was an untimely entrance, dropping 16% in
just more than a month. Nonetheless, buying this ETF gives you pure-play cloud
computing companies like Salesforce.com, as well as non-pure-play companies like
Teradata (NYSE: TDC ) and others. Forty stocks in all, its P/E is one-third that
of Salesforce.com. If you want a technology position in your portfolio, this is
a much smarter buy. Bottom Line The truth about value investors is that when
push comes to shove, we're really growth investors in disguise. No business
can survive indefinitely without growth, and we know this. It's just that we
want it at a reasonable price. Salesforce.com isnt. As of this writing, Will
Ashworth did not own a position in any of the stocks named here.
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