Will Salesforce Continue Its Bull Run?

With shares of Salesforce (NYSE:CRM) trading around $169, is CRM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Salesforce is a provider of enterprise cloud computing and social enterprise solutions. The company provides a customer and collaboration relationship management applications through the Internet or cloud. Cloud computing refers to the use of Internet-based computing, storage, and connectivity technology to deliver a variety of different services. Salesforce delivers its service through Internet browsers and mobile devices and markets its social enterprise applications and platforms to businesses on a subscription basis, primarily through its direct sales efforts and indirectly through partners. As cloud computing and services continue to gain momentum, look for Salesforce to continue to see increasing profits.

T = Technicals on the Stock Chart are Mixed

Since its initial public offering, Salesforce stock has seen an excellent uptrend that has shot its stock higher, year after year. Currently, the stock is consolidating, after a significant run, near all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Salesforce is trading around its rising key averages which signal neutral to bullish price action in the near-term.

CRM

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Salesforce options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Salesforce Options

40.11%

86%

83%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

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As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Salesforce’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Salesforce look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-433%

-5066%

-133%

-1400%

Revenue Growth (Y-O-Y)

32.09%

34.94%

34%

37.89%

Earnings Reaction

7.55%

8.82%

1.2%

8.8%

Salesforce has seen increasing revenue growth but is still working on its earnings growth. From these figures, the markets have been very excited about Salesforce’s last four earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Salesforce stock done relative to its peers, Oracle (NASDAQ:ORCL), Sap (NYSE:SAP), Microsoft (NASDAQ:MSFT), and sector?

Salesforce

Oracle

SAP

Microsoft

Sector

Year-to-Date Return

0.59%

0.24%

-1.90%

8.63%

5.23%

Salesforce has been an average performer year-to-date.

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Conclusion

Salesforce engages in new technology within an established niche in an effort to provide excellent, efficient, and accessible products and services to businesses around the world. The stock has seen an amazing run since going public but is now stalling near all-time high prices. Earnings and revenue figures have instilled confidence in investors who have bid the stock higher. Relative to its peers and sector, Salesforce has been an average performer. Look for Salesforce to OUTPERFORM.

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