General Options Blog

CRM – SalesForce.Com Ready to rock or ready to roll???

Up and down… Buy and Sell… Short and Long… Easy market trades. At the end of each one of those, there is someone who is right, and someone who is wrong. Betting on a stock to go up or down would seem to be an easy thing to do, and when you bet on a stock to go down long enough, eventually you will be right. That was the case with NFLX… that was the case with GMCR to an extent, and now folks are saying CRM is the next one to tumble.

 

CRM
CRM - Salesforce.com

Why? Because it seems severely overvalued on a fundamental basis… more specifically it’s P/E ratio which currently sits at an insane 675. To put that in perspective, SAP (SAP AG), a very similar company, trades at a 19.69 P/E ratio. Is that enough reason for it to fall? We shall see as CRM reports its 3Q on Thursday with much anticipation.  Is the stock priced for perfection? A miss on either the EPS side, revenue side, or outlook side, could be devastating.

 

So what are we looking for on Thursday from CRM? $575 mil in revenues and a .31 EPS should keep folks some what happy, but I do feel CRM will need to beat estimates and be rosy about future prospects to really see some upside.

 

So you ask, what are my thoughts?

 

Glad you ask that question. The retail investor looks at this stock and says “Easy Short”…  Well that’s what they have been saying for over a year now. Myself on the other hand, Ithought this stock would be over $200 now, but the August sell off, and subpar results for Q2 stymied that move.

 

Now I think CRM is primed to move towards $200, macro environment permitting. Here is why… CRM is a best of breed stock. Like PCLN, it has had sustained huge growth, and has continued to grow. Last Quarter revenues grew at over 38%, and this Q shouldn’t be any different.

 

Look at the past 2 years of earnings growth:

 

31-Jul-11

20.31%

30-Apr-11

38.02%

Jan. 31, 2011

60.50%

Oct. 31, 2010

85.83%

31-Jul-10

112.37%

30-Apr-10

180.74%

Jan. 31, 2010

312.36%

Oct. 31, 2009

612.77%

 

This companies a beast and I really think she moves 10-15% after earnings. Last I will leave you with what the analysts are saying. I usually don’t side with the analysts, but seems to me they have been dead on. Well, that’s after they started believing in the company when it broke $100.

Jefferies Remains Positive on salesforce.com (CRM)

Salesforce.com expected to report an above consensus quarter, says Credit Suisse

Salesforce.com price target raised to $163 from $138 at Caris

Citi: Salesforce.com Has Ways To Win You Don't Even Know About

 

I will leave you with that. Chart is below and play accordingly.

 

CRM - Sales Force.com on 11-15

Solars will be PennyStocks in 2012???

It was early 2008, and DRYS (Dryships) was topping $110 per share. DRYS was a dry bulk shipping company, and with shipping rates at all-time highs, they were reaping the rewards. DRYS was one of many bulk shippers trading at high multiples based on it’s earnings growth potential. By fall 2008 dry bulk shipping rates declined nearly 90% in the market downturn. DRYS went from high flying stock, to Pennystock in a staggering decline over a very short period of time. DRYS and the Dry Bulk shippers have never recovered, and most trade under $5(PennyStock Status). Demand has improved, but dilution from fund raising has caused irreparable damage to these once darling stocks.

BDI Index
BDI Index

Fast Forward to 2011, and we have a similar sector undergoing the same struggles. Solar manufacturers have come under severe selling pressure in 2011, on surplus supply and lower demand concerns, a lack of government subsidies that was growing demand in Italy and German,  as well as an overall weakening global economy. There is also a feeling that China is helping to flood the market with low cost panels, exacerbating the situation. One may look at former market leaders of this sector like these once $100+ stocks FSLR and STP, as undervalued based on the severe sell-off. But based on the current and future market conditions, one has to think these companies are in trouble and their stocks will continue to be under pressure from sellers and short sellers. Only time will tell, but my prediction is that all of the solar companies will be pennystocks in 2012.

DeJa Vu

Here we go again. Just like we wrote about last night, the Eurozone continues to be a focus, with the Bond yields being the headline driver. At last check this morning, Italy 10 Year Bond Yield crossed 7% once again. Yields in other Euro zone countries are also on the rise to include the 2nd largest economy in the Euro zone… France.

 

Market
Market

It’s only  a matter of time before the situation will require some severe intervention. Well actually, that time is now!

A Self-Fulfilling Prophecy?

The market, at times, can be the worlds best predictor of the future. Most times, the market has reacted ahead of events that would have normally caused a sell-off, because the outcome was “Priced-In”.

 

Bonds
Bonds

One of the less proven theories with the market, is the one of the self-fulfilling prophecy. Where rumor and speculation that may be 100% off base, actually cause the outcome to occur.

 

For example, a blog can say Morgan Stanley is going bankrupt because of it’s exposure to European debt. Traders then tank the stock to all-time lows on that fear, people withdraw funds from their accounts because of  fear …ect. Ultimately the company may have to resort to the outcome that was predicted, not because the blog was right, but because of what the rumor and speculation caused.

 

This maybe the case with the European Debt crisis. Over the past week, we have seen bond yield rise in Italy to obscene levels. Monday we saw the Yields rise in other European countries such as Spain and France. Is this a self-fulfilling prophecy?

 

 

As these yields rise, European countries will find it much more expensive to pay off their debt. We are starting to see a trend that may be unsustainable, and result in at least a few of these European countries going default.

 

I guess only time will tell!!

 

Kick The Can

European bonds, and I've been saying this since the minute they did the 50% "voluntary" haircut on Greece bonds, is that CDS is no longer relevant. There is no insurance on European bonds. anyone holding Italian bonds can expect the same fate as greece bondholders who had CDS insurance, you are going to get the shaft!!! they had big kool-aid smiles on their face when they announced the Greek bailout, when they really had chit on their face. damned if they did, damned if they didnt. All in all they did exactly what they've been doing since this all started.... kick the can down the road. and they are finding out its not working anymore....