Talking Numbers

Cloudy forecast for this stock?

Cloud computing giant Salesforce.com reported revenue and earnings that beat Wall Street's expectations. But, should investors sign out of its stock given the company's recent performance?

Richard Ross, global technical strategist at Auerbach Grayson, said Salesforce.com's stock is a sell. After the stock's strong start in 2014, it is now 20 percent off from its February all-time highs, breaking below its technically significant 50-day and 200-day moving averages in the process.

"When [you] look longer-term, the story goes from bad to worse," said Ross, a "Talking Numbers" contributor.

The stock recently made a head and shoulders pattern at the end of a five-year, six-fold gain. "When I see a head and shoulders top at the end of a multi-year run like that, I know we're going lower," Ross said. He predicts the 150-week moving average, currently around $41.65 per share, will be tested again as it was twice in the past four years.

"That's where I want to be a seller right now in anticipation of that move," Ross adds.

However, Erin Gibbs, equity chief investment officer for S&P Capital IQ Global Markets Intelligence, is not as negative on Salesforce.com, though she and her firm maintain a neutral outlook on the stock.

"We don't hold it in any of our advice portfolios but we're not looking to add it right now," Gibbs said. "Currently it's trading at about 105 times forward 2014 earnings. That sounds lofty but it is expected to grow at 40 percent on non-GAAP earnings. The problem is, I think the GAAP earnings are what's weighing on the stock along with these very lofty valuations."

GAAP earnings are calculated using General Accepted Accounting Principles (GAAP). In the first quarter of 2014, the company earned 11 cents per share – a penny above estimates – using non-GAAP earnings but lost 16 cents per share using GAAP earnings. According to the company, "GAAP loss per share is expected to be in the range of ($0.49) to ($0.47) while diluted non-GAAP EPS is expected to be in the range of $0.49 to $0.51" for the full year.

"When you look at GAAP earnings, we're looking at negative earnings for the past three years," said Gibbs. In order for the stock to bounce, Salesforce.com would have had to have reported earnings significantly higher than the 10 cents per share Wall Street expected because "there are very high growth expectations in this stock already."

To see the full discussion on Salesforce.com, with Ross on the technicals and Gibbs on the fundamentas, watch the above video from CNBC's "Street Signs."

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