Salesforce.com Inc. (CRM) is the market leader in the on-demand Customer Relationship Management (CRM) space and continues to see substantial subscriber and customer growth.
Although the company reported strong results year-to-date, dilution from the InStranet acquisition will lower EPS for fiscal 2009. Though this may penalize the stock, we believe InStranet makes strategic sense, and over the long-term EPS growth will accelerate. We therefore reiterate our Buy rating on Salesforce.com's shares with our six-month price target of $45.00.
We believe a price-to-sales multiple is an appropriate valuation metric for Salesforce.com shares given the early stage of the company and its software-centric business. Traditionally, the stocks of leading software providers trade in a range of 5x to 15x revenue.
On our FY 2009 revenue estimate of $1,072.2 million, or $8.81 per share, the stock is trading at a very low P/S multiple of 2.6. Our price target of $45.00 represents a P/S multiple of 4.0x with our 2010 revenue estimate of $11.14 per share. Although profit margins are currently very low for Salesforce.com, Return on Equity (ROE) is trending in the right direction.
Anita Mohata contributed to the report.
Read the full analyst report on CRM
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