(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Shares of Salesforce.com Inc. (CRM) have climbed by about 86% over the past three years to a record high, easily outpacing the S&P 500's rise of only 31.25%. But the bulls see shares rising even higher. Analysts predict a rise of 10% to $147.50 in the coming months. Meanwhile, options traders are betting shares will rise by 6% to approximately $142 by the middle of July. 

CRM Chart

CRM data by YCharts

Adjusting For Growth

Salesforce trades at what would appear to be a lofty earnings multiple of 58 times fiscal 2018  earnings estimates of $2.31 per share, nearly three times higher than the S&P 500's multiple of about 18.6 times 2018 earnings estimates of $147.38 per share. But when adjusting Salesforce's earnings multiple for growth, the company has a PEG ratio of just 0.82, making shares much cheaper than the P/E ratio suggests. 

CRM PE Ratio (Forward) Chart

Strong Earnings

Earnings growth is the source for all the bullish sentiment in the stock and is the driver of the stock's outperformance versus the S&P 500 over the years. Analysts are forecasting the company's earnings to rise by nearly 71% in 2018 to $2.31, up from $1.35 per share. Analysts have been steadily upping those estimates for the company since the start of the year. Over the past 30 days, analysts have raised their estimates by about 6% from $2.17 per share. The company easily beat analysts’ estimates when it reported fiscal first-quarter 2019 results, coming in at $0.52 versus estimates of $0.45, 13.8% better. 

Strong Revenue

Revenue is another crucial component to the bull's story and is currently seen growing 25.3% to $13.13 billion in the fiscal year, up from $10.48 billion a year ago. Analysts have also been upping their estimates for the company’s revenue outlook over the past 30 days by roughly 3.2% from $12.72 billion. The company easily topped estimates last quarter, coming in 2% better at $3.0 billion. 

CRM Annual EPS Estimates Chart

Something Seems Off

What seems to be a surprise in the bullish outlook, is the lack of upside the analyst and options traders see for the future stock price. Analysts are only forecasting the stock to rise by about 10% from its current price. What is also surprising is that there is a lack of big bullish bets in the options beyond the July expiration. Perhaps, it would suggest that the company's days of significant stock price performance are behind it.

Only time will tell for sure, but if Salesforce can keep putting up considerable earnings and revenue growth rates, then stock performance is likely to follow. 

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. 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. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.