If you're currently hunting for a new job, you've probably come across Taleo (Nasdaq:TLEO), a provider of on-demand human resources recruiting tools. The company's clients include 47 of the Fortune 100, which likely had something to do with Deloitte LLP naming it to the prestigious Technology Fast 500, honoring some of the fastest growing companies in North America. With accolades like these, it's not surprising that Taleo's stock is up 191.2% year-to-date. For those who bought early in the year when its stock price was below $10, congratulations. Sell, and move on. For those considering investing in Taleo at these inflated prices, I'll give you four reasons to avoid doing so.

Lots Of Revenue and Nothing to Show for It
Taleo has a client list a block long. It's a veritable who's who in corporate America. The Fortune 100 helped drive revenue through the roof, increasing sales by 226.9% in just six years. Unfortunately, the company accomplished this while sustaining $15.2 million in operating losses. If we were back in the late 1990s, this type of performance would warrant a $100 share price. Thankfully, we're not. In its second quarter, which ended June 30, Taleo's revenues grew by 29.5% while its operating loss grew by an astounding 83.2% to $1.27 million. For the first six months of 2009, the company's operating loss was $3.3 million, more than double a year earlier.

Meanwhile, Taleo's main competitor in human resource recruiting technology, Kenexa (Nasdaq:KNXA), managed to deliver a small operating profit of $1.86 million in the second quarter on a 30.1% drop in revenues. It isn't great, but profits are the name of the game in the public markets. (Learn this easy-to-understand technique of analyzing a company's financial statements and reports, see Introduction To Fundamental Analysis.)

Plenty of Options
I've always wondered why investors, especially institutional ones, would want to own shares in a company that can't seem to make a profit. I suppose it's like the sports team that gives an aging superstar a second or third kick at the can despite showing no recent flashes of greatness. Taleo does have profit-making potential. Well, potential doesn't put your kids through college. There are several profitable options to choose from if you absolutely need a technology fix. Among the competitors Taleo lists in its most recent 10-K are Oracle (Nasdaq:ORCL), SAP (NYSE:SAP) and ADP (NYSE:ADP). Between them, their operating income was $14.19 billion in the trailing twelve-month period. Save yourself some grief and go for the solid single or double. Home runs are for speculators.

Let's assume for a second that Taleo is in fact a profitable business, which it's not. Given its current valuation, there is no way a growth-at-a-reasonable-price investor would even contemplate making an investment in Taleo. Benjamin Graham wouldn't invest in a stock if the price-to-earnings ratio multiplied by the price-to-book ratio was more than 22. Taleo's is 108 and that's assuming the forward P/E of 24 (according to Yahoo! Finance) actually is achievable. Remember, this company hasn't been profitable for most of its existence, nor in the first two quarters of 2009. In order to reach analyst estimates for 2009, Taleo will have to deliver 78 cents per share in net profit in the second half of the year. It might do so, but history's not on its side. This company is much too expensive in my opinion.

CEO Compensation
I've never met Taleo CEO Michael Gregoire. I'm sure he's a standup person. However, current investors should wonder about his total compensation in 2008. Gregoire earned $2.98 million in 2008, which includes $2 million in stock and option awards. Just $400,000 was for his actual salary. This seems fair given the type of business. However, the incentive portion of his compensation is ridiculous. This is a business with $200 million in revenue and little or no profit. Compare this to Keith Busse, CEO of Steel Dynamics Inc. (Nasdaq:STLD). His total compensation in 2008 was $4.3 million on revenues of $8.1 billion and operating income of $855.2 million. Someone's overpaid here and it isn't the steelmaker. (The proxy statement can help determine whether a CEO is well compensated - or just overpaid, see Executive Compensation: How Much Is Too Much?)

Bottom Line
I think you know by now where I stand on Taleo stock. This isn't a keeper, although I'm sure there are enough believers out there to continue pushing the stock ever upwards. The markets never cease to amaze me.

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