Salesforce: The Microsoft of the Cloud

11/11/2014 8:00 am EST

Focus: STOCKS

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

We’ve long felt that this recommended stock could be the Microsoft of the Cloud era, suggests growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Salesforce.com (CRM) has the leading productivity software for businesses aiming to improve sales performance, customer service, and marketing, among other functions has four main businesses today:

  • Sales Cloud (contact and opportunity management, social media collaboration to find leads)
  • Customer Service Cloud (faster, more personalized support through phone, email, social media, and more)
  • Marketing Cloud (combining and collecting data from multiple channels in real time)
  • Platform (customers build their own apps for themselves or their customers)

All four of these divisions are growing steadily, in fact, revenue growth has accelerated in recent quarters to the high-30% range, while cash flow (which is a far better measure than earnings, which understate income) is also humming higher by 30% each year.

Investors are getting excited now that it looks like Salesforce may be done with its acquisition spree (most of which diluted the share count), allowing cash flow to soar, while the firm’s new Analytics business should provide another tailwind to growth in the quarters ahead.

With productivity and sales efficiency always a big draw among big companies, there’s no reason Salesforce can’t grow rapidly for many years. We like it. Earnings are out November 19.

CRM has done okay since a major top in late-2010 (it’s up more than 50% since then), but with tons of choppy action and an RP line that hasn’t made much progress for a few years.

Now, though, the stock might be ready to move—after peaking at $67 in March and falling to $48 in May—the stock bobbed and weaved all summer along its 40-week line.

Then it shook down to $51 last month and has been soaring back toward its peak since. We think a dip following the recent gap up is likely, especially with earnings on the horizon.

Subscribe to Cabot Top Ten Trader here…

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