salesforce.com, inc. (CRM), Oracle Corporation (ORCL), and More: These 5 Numbers Suggest Rainclouds For This Company

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Fourth, the market is valuing Salesforce at a higher level than their peers based on the cash on their balance sheet relative to their market cap. The only company with a lower percentage of net cash and investments relative to market cap is SAP with 4.52% of their market cap. represented by net cash. salesforce.com, inc. (NYSE:CRM) comes in second with 6.72% of their market cap. represented by net cash and investments.

Oracle Corporation (NASDAQ:ORCL) appears to be a better value with 9.79% of their market cap. in cash and investments. Microsoft leads the pack, with nearly 28% of their market cap. represented by net cash and investments. Since all of these companies are generating more free cash flow per dollar of sales, this disconnection in market cap. valuation is a big deal.

The Problem Everyone Knows Just Makes All Of The Above Worse
The fifth problem Salesforce.com is facing is, the company’s share count is growing fast due to stock options. On a year-over-year basis, diluted shares are up over 8%. In part because of this growth, though revenue was up 32%, EPS increased just 18.6%.

While analysts are calling for almost 30% EPS growth in the next few years, I don’t know if this is possible. The company’s current quarter is a good example of the challenges. Revenue was up 32%, but EPS didn’t come close to this growth. For Salesforce to achieve 30% EPS growth, the company will have to improve on its use of shares as an award for performance.

While Oracle Corporation (NASDAQ:ORCL) and SAP are both expected to grow EPS by 11% or more in the next few years, relatively speaking the most attractive competitor is probably Microsoft. The company pays the highest yield, sells for just 10 times projected earnings, and has the largest percentage of market cap. represented by cash. Though Microsoft doesn’t have the same growth rate as salesforce.com, inc. (NYSE:CRM), the company also doesn’t issue shares like Salesforce either. With Salesforce selling for 90 times projected earnings, growth slowing, lower relative free cash flow, and a growing share count, the only clouds in Salesforce’s future are rainclouds.

Chad Henage owns shares of Microsoft. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of Microsoft and Oracle.

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