I am not talking about CRM's bubble valuation. Everyone knows by now that CRM is overvalued, only fools argue with that.
There is actually a better reason for expecting a steep decline of the stock. A reason that is not widely understood, especially not by the retail investor. It has to do with CRM's trickery of pushing NON GAAP earnings versus GAAP earnings. No matter how you slice it, the valuation of a stock is partly and traditionally measured by its Price/Earnings ratio (PE). All analysts and authors agree that the PE of CRM is very high. The higher the PE, the more overvalued a stock is regarded.
The majority does not realize that the PE of CRM is calculated on GAAP earnings. Thus not on the NON GAAP earnings the company is promoting. These NON GAAP earnings are actually declining, but the markets have been forgiving thusfar because revenues are still rising. However, the picture is even worse for the real (GAAP) earnings. GAAP earnings are projected to be negative for this quarter and for the full year. This means that the company will be losing money from now on. But is also means that the PE will rise over the next 12 months.
Even the analysts do not get it, for thay are stating the trailing PE based on GAAP, and the forward PE based on NON GAAP, thereby falsely suggesting the company will be growing its profits, while nothing is farther from the truth. The forward PE is therefore stated as lower, thus "better" than the trailing PE. You can even see this on Yahoo Finance:
However, that forward PE of 70 will be corrected to the trailing PE after next earnings. Were it is now in the 300 range, it will grow to 1000 over the next months.
So? The overvaluation will soon be considered as outrageous. This will be unforgiving for a so called growth stock valued at 11 times the sales. At first many people won't understand why the PE is rising even more, while the stock price remains the same. But eventually they will figure out the reason: That the company and its analysts have been promoting fake NON GAAP earnings, while the true GAAP earnings are actually declining to losses. Losses that are actually caused by compensating the management employees with stock options, diluting the stock. Once the public understands they have been deceived, piling up their money into a bubble "growth" stock, that isn't growing shareholder value at all, they will flee the stock in droves.
This post is a fair warning to everyone who doesn't see it coming that this stock will be cut in half (at least) over the next twelve months. There is always a chance I may be wrong, but I don't think so. If you agree and act now, thank me in 12 months.
Even value companies, making tons of money, with a PE of 2, PS of 0.6, like JASO:
can lose 80% of their value, when the hype is over (in this case the hype was solar). Maybe it's time to buy JASO here?
Imagine how much a money losing POS like CRM can fall!
Disclosure: Very very short
CRM is nothing but Godaddy.com+MSFT Sharepoint, every other cloud solution out there has the exact same thing.
There is nothing special about the technology at all. if anything I am surprised that other CRM solutions like MSFT and SAP haven't slapped them with a lawsuit yet.
The worst thing is you have no control over your data infrastructure, which is the most important thing for a company.
WHat if you wanted to move all your apps in house, its totally impossible and totally impossible to merge your data from CRM to inhouse as well.
This is a freaking gimmick.
I may not quite understand the accounting aspect and they gimmicks they are pulling on that in but I am a technology guru and understand the gimmick they are pulling on the technology side.
If anything it would behove them to buy Godaddy.com and Network Solutions because that is what there real customer base should be focused on.
PE is now 562 (up from 330) and growing to 1000 over next two quarters. Because those quarters will also be GAAP EPS losses.
Google Finance has already updated the financial figures:
(See PE at top of the page)
Yahoo Finance has not yet updated, but will soon:
That forward PE of 61 is really laughable. The correct figure is 1000.
This is how the retail investor gets fooled.
Listen to Cramer. The clown!
Cabot market letter:
The short story is this: The market has probably begun its bottoming process and that process is probably going to take a lot more time. But investing aggressively now is simply too risky. Not until the bottoming process is truly over, and the new uptrend is under way, will we be happy to advise more aggressive investment. Until then, building your cash reserves is important.
The longer version is this: It's human nature to try to pick up bargains after sharp market sell-offs, and the big market moves of recent days are evidence of that. But it's devilishly difficult to do this profitably, which is why we advise simply waiting. Eventually, the market bottom will be established, and it will be far less risky to re-enter the water then. Equally important, once the bottom has been established and the new uptrend has begun, we'll have a better idea of exactly what stocks the market will reward; we'll know who the leaders are. Until then, we can only guess. But it's worth pointing out that new bull markets typically bring new leaders, which is why it's important you don't have a lot riding on the leaders of the last bull market.
When Yahoo Finance will update this quarterly income statement (with a net income loss of 4.3 million for last quarter), the PE will jump to from 330 to 545.
This will come as a nasty surprise for many retail investors.
What the F is going on with this stock? Jim Cramer and my broker said it was a buy! Is it?
IMHO, I hope you use a discount broker and don't rely on your broker for advice. It's possible your broker is giving out the rating of his company, which either hasn't been updated or won't be updated until certain investment banking and other large clients have exited their longs. Either way, you might want to reconsider who is your broker, unless you've been helped on other stocks.
IOW, IMHO you are right and your broker is wrong.
What an idiot! P/E is a thing of the past! If you say CRM is overpriced because of it's P/E then why are the institutions, hedge funds buying it? What is their reasoning behind this pump???? Well I tell you why! AAPL has a p/e of 300+ back in 2003! This is a growth stock! Once CRM profits increases, P/E will drop from 300 to 30 in a heartbeat!
Let me refrain from returning empty name calling, but just say that your statements are the best advertisement to get the hell out of this stock.
Assuming you are not an idiot, but a savvy investor, please explain when and how you foresee CRM's profits rising, causing it to go from 300 to 30 "in a heartbeat", and why you are prepared to wait for that? Because CRM's management has not been able to do it so far. While you're at it, maybe you could also explain the logic of "growth with growing losses"? I am sure many longs would desire sharing your insights.
Did you also understand that the PE is 545 now and will rise to 1000 first?
How much is your loss thusfar?
Are you old enough to have lived through the dotcom bubble?
PE is 545 after this last earnings report, up from 330. It will be 1000 within next two quarters. And then N/A after all 3 future quarters have calculated in. 11 cents projected EPS loss for this year. In reality, it will be much more. Investors are and will be increasingly realizing they have been throwing their hard earned money in a bottomless , bragging, hyped, money losing, bubble pit. See you all at 50.
Most media continue to be friendly for CRM. Above is an exception. Investors appear to see through the scam now, starting to realzie that earnings do matter after all.