As long as Salesforce (CRM) keeps on delivering results like the latest, then its stock likely has room to continue its strong run. Remember though, markets are all about the future, and for now, the key phrase here is "as long as the company keeps on delivering." One slip up and CRM will feel the wrath of the market. (For more, see: Year in Review: Salesforce.com Inc..)

After the close of trading on May 18th, CRM reported first quarter 2017 revenue of $2.387 billion increased 25% from $1.916 billion. The company reported a net loss of $9.207 million, down from a gain of $38.759 million, the non-GAAP diluted EPS came in at $0.28. Analysts had been looking for revenue of $2.351 billion, and EPS of $0.26, a solid beat on both the top and bottom lines. 

CRM Chart

CRM data by YCharts

For the second quarter of 2018, the company is expecting revenue in a range of $2.51 billion to $2.52 billion, with non-GAAP diluted EPS in a range of $0.31 to $0.32. Analysts are looking for the company to have revenue of $2.48 billion and EPS of $0.31. For the full-year 2017, the company is guiding for revenue of $10.25 billion to $10.30 billion, and non-GAAP diluted EPS of $1.28 to $1.30.  Analysts have been looking for the company to have revenue of $10.18 billion and EPS of $1.29. As a result, second quarter and full-year results on revenue and EPS came in above the consensus view. (For more, see also: Three Questions for Salesforce in 2017.)

The company saw its Sales Cloud revenue grow to $829.6 million from $724.6 million, and Service Cloud grow to $651.2 million from $540.1 million. Meanwhile, revenue in the Americas increased to $1.755 billion from $1.413 billion, and Europe saw its revenue of $409.6 million from $327.8 million. 

The company reported solid results all around with solid growth rates, and guidance modestly higher than expectations. Analysts have aggressive EPS targets, with expectations of growing to $2.25 in 2019 from $1.29 in 2017. 

CRM EPS Estimates for 2 Fiscal Years Ahead Chart

CRM EPS Estimates for 2 Fiscal Years Ahead data by YCharts

Analysts are predicting top line growth as well, with estimates reaching $14.32 billion in 2019 from around $10.2 billion in 2017.

CRM Revenue Estimates for Next Fiscal Year Chart

CRM Revenue Estimates for Next Fiscal Year data by YCharts

Analysts have monster expectations built into EPS and revenue estimates, which help to explain why the stock trades at the nosebleed valuation. The markets are all about the future and expectations. 

CRM PE Ratio (Forward) Chart

CRM PE Ratio (Forward) data by YCharts

Then when these valuations start getting adjusted for growth, we see how investors justify these lofty valuations. 

CRM PEG Ratio (Forward) Chart

CRM PEG Ratio (Forward) data by YCharts

The results are solid, and the guidance, better than expected. Keep on delivering CRM, and the future is yours. 

Michael Kramer is the Founder and Portfolio Manager of Mott Capital Management, LLC a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

 

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