Salesforce.com (CRM) - A Force to Be Reckoned With?

I couldn't help myself with trying to analyze the madness which is SalesForce.com(CRM). If you don't already know:


Salesforce.com, Inc. is a provider of enterprise cloud computing applications. It provides a customer and collaboration relationship management (CRM), service to businesses of all sizes and industries worldwide and provides a technology platform for customers and developers to build and run business applications. Cloud computing refers to the use of Internet-based computing, storage and connectivity technology for a variety of different services. The Company designed and developed its offering, which can be deployed, customized and integrated with other software applications. It markets its service to businesses on a subscription basis, primarily through the direct sales efforts and indirectly through partners. In May 2010, the Company acquired Jigsaw.


--Via Reuters


AND if you don't already know:

So the company's stock has been nothing short of stellar. CRM has been one of the Street's beloved little bubble stocks, but under the surface is some troubling news.


Currently shares of CRM are trading for nearly 198 x earnings...an astonishing half percent yield. The company has been growing its revenue by 44% annually for the last 5 years, but its EPS figures have not been consistent enough. EPS doubled YOY from 2008, but the current TTM EPS figure of .58 could be indicative of that growth slowing down significantly.


From a cash flow perspective, CRM does generate wonderful cash flows on an annual basis:

(Via GuruFocus)

Could this justify people's apparent love affair with the growth prospects of this company? I personally do not think so. It would take an incredible cash return to justify the current valuations and the current FCF yield is only about 1.9%! 


Not to mention that the company doesn't generate good returns on its equity or its assets:

(Via GuruFocus)

With a Price/Book ratio of 11.5, the yield on CRM's equity is only about .41%. 

So what do people see in this stock that is so special?

Even if cloud computing is the future, don't investors realize that there is already a company that some people may have heard of called GOOGLE that has been pushing cloud computing for a number of years? Is CRM really going to successfully compete with a behemoth like Google?


My opinion is that the stock is just a game of hot potato, it will get thrown around in a circle until the very last group of speculators gets burned, badly. Price follows value and although CRM is growing and has a good balance sheet that doesn't make it invaluable.

I ran a DCF valuation that assumed very unrealistically positive growth prospects and a generous discount rate and I still only came up with a price around $43.00