Author Topic: CRM - Salesforce.com  (Read 47389 times)

KCLarkin

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Re: CRM - Salesforce.com
« Reply #160 on: March 28, 2019, 06:50:16 PM »
I thought of CRM when I read this:
https://www.advisorperspectives.com/commentaries/2018/03/15/why-financial-statements-dont-work-for-highly-innovative-companies

Quote
earnings explains only 2.4% of variation in stock returns for a 21st century company

Edit to add:
When a company consistently screens as "expensive" (say trading consistently above 30x for five years), I'm always skeptical that it is "overvalued". I don't have an opinion on CRM, but there are plenty of recent examples of companies trading at 40x or 50x earnings that were actually very cheap.
« Last Edit: March 28, 2019, 07:08:51 PM by KCLarkin »


Gregmal

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Re: CRM - Salesforce.com
« Reply #161 on: March 28, 2019, 07:36:29 PM »
I thought of CRM when I read this:
https://www.advisorperspectives.com/commentaries/2018/03/15/why-financial-statements-dont-work-for-highly-innovative-companies

Quote
earnings explains only 2.4% of variation in stock returns for a 21st century company

Edit to add:
When a company consistently screens as "expensive" (say trading consistently above 30x for five years), I'm always skeptical that it is "overvalued". I don't have an opinion on CRM, but there are plenty of recent examples of companies trading at 40x or 50x earnings that were actually very cheap.

I agree 100% and utilize the same reasoning with companies that escape my analytical skills. Short term, sure, things can go anywhere. But when something is what it is for a half decade or longer, the odds are that this is what it is.

I used to make this mistake, but ridding myself of it helped my ability to pivot into new ideas that otherwise I'd miss. Chances are, if I thought something was overvalued for 5+ years but it consistently trades at that valuation, I am the one who is wrong. The sooner you can come to terms with that the sooner you can re examine your investment thesis. Look at the VIC Wingstop thread. The best thing you can do for your portfolio is to figure out when you are wrong as soon as possible. Not make excuses to continue being wrong.

Spekulatius

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Re: CRM - Salesforce.com
« Reply #162 on: March 28, 2019, 08:02:24 PM »
I thought of CRM when I read this:
https://www.advisorperspectives.com/commentaries/2018/03/15/why-financial-statements-dont-work-for-highly-innovative-companies

Quote
earnings explains only 2.4% of variation in stock returns for a 21st century company

Edit to add:
When a company consistently screens as "expensive" (say trading consistently above 30x for five years), I'm always skeptical that it is "overvalued". I don't have an opinion on CRM, but there are plenty of recent examples of companies trading at 40x or 50x earnings that were actually very cheap.

Aren't the CRM companies in the end valued using accrual accounting and using non- GAAP and difficult to verify metrics like customer lifetime value. I think these metrics could become severely challenged when the cost of money goes up (in a recession etc).  when people start to use much higher discount rates. I am not sure I buy into this business model of cashless and profitless prosperity of AMZN, Uber, Lyft and other unicorn yet, but I wouldn’t bet on their demise either.

The “too hard pile” just gets bigger and bigger nowadays....
To be a realist, one has to believe in miracles.

KCLarkin

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Re: CRM - Salesforce.com
« Reply #163 on: March 29, 2019, 07:59:53 AM »
I am not sure I buy into this business model of cashless and profitless prosperity of AMZN, Uber, Lyft and other unicorn yet, but I wouldn’t bet on their demise either.

CRM is still in my "too hard pile" but the obvious question is: why is this company spending 45% of revenue on sales & marketing. If this company could maintain current revenue while spending "only" 25% on sales, then it's maybe trading at 50x normalized earnings. Still seems expensive to me, but not irrational given the growth rate.

SHDL

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Re: CRM - Salesforce.com
« Reply #164 on: March 29, 2019, 11:10:10 AM »
I thought of CRM when I read this:
https://www.advisorperspectives.com/commentaries/2018/03/15/why-financial-statements-dont-work-for-highly-innovative-companies

That’s another central issue.  Personally, the sign I watch out for is when a company somehow keeps growing its revenues very quickly year after year without raising any capital and reporting little/no profits.  I take that as a good indication that the company is actually making more money than what the financial statements say and that it is re-investing those (invisible) “profits” through the income statement.