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  • eyesandears51 eyesandears51 Mar 1, 2013 11:34 AM Flag

    Customer Relationship Management, Yes.....Near Term Shareholder Value, Less Certain

    Yellow caution sign. Fact CRM stock is up by an impressive 4.3% this morning on the rise in sales this past quarter. Let’s do a deeper dive….how did that growth set up for future profitability? Year over Year Gross Margins were down 40 basis points, OPEX grew just under 34%, including a 23% rise in G&A,YOY total operating loss increased to $ 20.8 million from 6.4 million, comparable period EPS increased from -$.03 to -$ .14, forward guidance is a GAAP loss -$ .42 to -$ .44. The bottom line is that revenue is projected to increase, but does not scale into future profitability.
    Stock technical’s are pointing to frothiness, MACD indicates a bearish trend, and Stochastics are telegraphing an over bought condition. Additionally CRM has a very high forward 5 year PEG of 3.2, considerably exceeding the 2.0 flashing red light danger zone signaling excessive valuation. The company also has a very high short 12.7% of float of 40%, 10% is considered by many to be the threshold for a potential “ battleground stock “ The concern is confirmed by high insider selling, by corporate officers, 80 separate sell transactions exceeding 1 million shares v.s.1 buy.
    Lastly, many expect the market to pullback by 5-10% sometime between now and the replay of the Washington DC double thriller horror movie’s " Sequestration " at the beginning of March, and US Government Debt Extension II March 27. A low beta stock could expect to experience a ratable retrenchment, higher beta issues have exaggerated movements up in good times and down during pullbacks. Put in context, during the last confrontation over the sequester in November, CRM dropped from $ 149.07 November 6 to $ 139.08 November 13, not sustainable surpassing $ 46.92 until November 21. Additionally, the stock frequently experiences sell off’s within a week of reported earnings.
    Conclusion, CRM is a quality high growth company, however at current price levels the 30-45 day risk/return is disproportionately negative. As a current investor in CRM, I believe adding to my position after a price pullback, precipitated either by a normal market correction or sequester/debt expiration inspired retrenchment, suggests a buying range closer to the 200 day SMA of $ 151.04- $ 156.07, offers a better return with lower risk.

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