Is Salesforce.com a Buy at All-Time Highs?

With shares of Salesforce.com (NYSE:CRM) trading around $49, 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 recently reported earnings and gave full-year guidance which topped analyst expectations. The company made a profit of $76.6 million, up from a loss of $9.8 million a year ago. Revenue for the period ending in October is expected to be between $1.05 billion and $1.06 billion with a profit of 8 cents or 9 cents per share. “We’re having an outstanding year of growth,” CEO Marc Benioff told analysts on an earnings call.

T = Technicals on the Stock Chart Are Strong

Over the last couple of years, Salesforce.com stock has struggled to make new highs until today. 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

37.75%

30%

27%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 small 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-18.18%

-200.00%

-378.67%

-5066.67%

Revenue Growth (Y-O-Y)

30.80%

28.35%

32.09%

34.94%

Earnings Reaction

13.13%*

8.29%

-17.28%

-5.26%

Salesforce.com has seen decreasing earnings and rising 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

18.41%

-3.84%

-8.11%

24.36%

12.41%

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 recently reported earnings that impressed investors as well as raised guidance. The stock is currently trading near all-time high prices and looks ready to continue. 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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