Hot Stock: Salesforce.com

Rapid growth that won’t soon stall

 

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Depending on who you follow on Twitter and Facebook, you may have noticed an inordinate number of Salesforce.com-related messages. The popular software company is in the midst of its annual Dreamforce conference, a huge event that highlights new cloud-based technologies and the company’s own products.

What may have got lost in all the conference updates, though, is Salesforce’s (NYSE: CRM) quarterly results. On Monday, the company, which specializes in customer relationship management applications, announced that third quarter revenue rose to $1.08 billion, a 36% year-over-year gain. It earned 9¢ a share, which was in line with analyst estimates.

The company also said that fourth quarter revenues will hit $1.12 billion, while 2014 fiscal sales will reach about $4.06 billion. It’s been a remarkable run for the company—in just four years it has quadruped its top-line sales, while shares are trading at a record high of about $53.

Analysts don’t see that rapid growth stalling anytime soon. After its earnings announcement a number of companies, including RBC Capital Markets, Stifel and Needham & Co., increased their 12-month price targets.

UBS Investment Research, which upped its price target by a dollar, was pleased with the results. In a report dated Nov. 18, analyst Brent Thrill said that its positive numbers were driven by its core CRM products, while its June 2013 purchase of ExactTarget, a cloud-based digital marketing program, is already paying off.

Salesforce said that ExactTarget will bring in between $140 million to $180 million in revenues during the fourth quarter, which is higher than what some analysts have predicted.

The company isn’t cheap. Its price-to-earnings valuation is at a record high at 118 times earnings, while its enterprise value-to-EBITDA ratio is 39.7, both well above the peer average. Yet Thrill says that Salesforce “remains our best large cap growth idea and a core holding for cloud software.”

If it can continue to grow its CRM revenues and take in more money from its acquisitions then the stock’s price will climb. UBS has a $66 price target on the stock, while a number of other analysts have targets between $65 and $70.

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