Can Salesforce.com Continue Its Uptrend?

With shares of Salesforce.com (NYSE:CRM) trading around $53, 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. Salesforce delivers its service through Internet browsers and mobile devices and markets its social enterprise applications and platforms to businesses on a subscription basis. Cloud computing — the use of Internet-based computing, storage, and connectivity technology to deliver a variety of different services — has generated a lot of buzz in recent years.

Salesforce.com reported third-quarter results that came in slightly above estimates due to strong performance from the recently acquired email targeting firm ExactTarget, Reuters reports. Salesforce’s revenue rose 36 percent to $1.08 billion and earnings came in at 9 cents a share. Salesforce shareholders were skeptical about the $2.5 billion acquisition of ExactTarget back in June, but in its earnings report Salesforce increased ExactTarget’s yearly estimated revenue from $140 million to $180 million.

T = Technicals on the Stock Chart Are Strong

Salesforce.com stock has been trending higher over the last several months. The stock is currently trading near all-time high prices and looks poised to continue. 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.com is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

CRM

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Salesforce.com Options

36.47%

26%

24%

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

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish 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.com’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Salesforce.com look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-46.15%

-18.18%

-200.00%

-378.67%

Revenue Growth (Y-O-Y)

36.48%

30.80%

28.35%

32.09%

Earnings Reaction

-2.72%*

12.55%

8.29%

-17.28%

Salesforce.com has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been upbeat about Salesforce.com’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

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

Salesforce.com

Oracle

SAP

Microsoft

Sector

Year-to-Date Return

28.26%

4.02%

2.15%

38.26%

20.17%

Salesforce.com has been a relative performance leader, year-to-date.

Conclusion

Salesforce is a leading provider of cloud computing and CRM technology to companies and consumers worldwide. The company reported third-quarter results that came in slightly above estimates due to strong performance from the recently acquired email targeting firm ExactTarget. The stock has been trending higher over the last several months and is currently trading near all time highs. Over the last four quarters, investors have been upbeat about the company as earnings have been decreasing while revenues have been exploding. Relative to its peers and sector, Salesforce.com has been a year-to-date performance leader. Look for Salesforce.com to continue to OUTPERFORM.

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