Insanity reigns

[Cardboard]

Once in a while, I look at "other" stocks to see if I am well calibrated with my analysis of my own companies regarding management, how to interpret numbers, etc. To prove that I am not making things up or being in denial or missing something else better in the market.

 

I think that you should all look at the results published tonight by Salesforce.com and tell me that this thing is worth a P/E of 90.0 times earnings (that is based on after hours closing and their suggested adjusted earnings). A $13 billion market cap. You will love your stocks once you have looked at this one.

 

Based on sales growth, earnings growth, cash flow, ROE, net cash and any possible metric that I can think of, I have no way to even get close to the multiple currently attached to the company. IMO, 40 times earnings would even look rich. Sales growth is not even impressive at 25%. They are forecasting Q2 to Q3 sales growth of only 4%. I must admit that marketing is a large expense, but if you slow this down what will happen to sales growth? Then to the P/E?

 

Beyond valuation, this stock could be manipulated at will. The way it works, this company can beat estimates forever by simply guiding a range and then adjusting its stock based compensation which is enormous relative to operating earnings to beat the number. Then if they see business slowing a bit, they could acquire a few competitors to ensure that sales keep up.

 

GAAP earnings are completely irrelevant in this story. Stock compensation don't matter according to management and to the analysts even if it reduces operating income by 47%. The amortization of purchased intangibles is also irrelevant (in the software business!). Even after all these massive adjustments, it trades at 90 times earnings.

 

Then when you turn to see what the insiders are up to, all you find is a massive number of shares being sold daily on automatic sale programs and options being exercised. The CEO Marc Benioff collects almost $1 million a day with these sales. He must hate Saturdays and Sundays since the market is closed!

 

Shorting would make sense IMO. Unfortunately, the game is rigged since it takes much more buying power to short Internet stocks than regular stocks. If they move against you, they kill you due to the multiplying effect. The puts are also very expensive. The great winners appear to be again the insiders who are liquidating and diluting shareholders until the music finally stops.

 

Cardboard

[Munger]

Could not agree more.

 

And despite the INSANE valuation, complete waste of time, money, and angst trying to short.

 

Almost anything remotely associated with "cloud computing" is a bubble.

 

VMware -- $880 million of FCF in FY09.  Market cap = $32B

 

Netsuite -- FCF negative; Market cap = $1.2B

 

 

[Smazz]

This reminds me of the "cash burn" clocks from the late 90s we used to watch!

 

Fun times! ;D

[Eric50]

I have a small put position since mid-July. You might also want to look at Lululemon, another fad that is less overvalued though.

[Ballinvarosig Investors]

VMware -- $880 million of FCF in FY09.  Market cap = $32B

I own some VMWare.

 

I started buying in April when EMC started purhasing stock (they still are buying by the way). To me at least, it was pretty clear that once they started buying, they were hardly just going to buy a few thousand shares and stop. The cloud computing nonsense is obviously pushing the stock up too, but the emc effect can't be ignored.

 

Insider buying - http://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001124610

 

It would not surprise me if they tendered for the remaining stock.

[Guest misterstockwell]

VMware -- $880 million of FCF in FY09.  Market cap = $32B

I own some VMWare.

 

I started buying in April when EMC started purhasing stock (they still are buying by the way). To me at least, it was pretty clear that once they started buying, they were hardly just going to buy a few thousand shares and stop. The cloud computing nonsense is obviously pushing the stock up too, but the emc effect can't be ignored.

 

Insider buying - http://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001124610

 

It would not surprise me if they tendered for the remaining stock.

 

Spin it out at low valuation and buy it back at huge valuation???? That doesn't seem very smart

[Cardboard]

Eric50,

 

Lululemon is one of my biggest shorts. Founder, CEO and CFO all selling shares. Disclosure of sales between Canada and U.S. is terrible and hidden for what purpose? Recent tax change indicate that growth in Canada is over. Many warnings in last conference call (relocations, showroom costs, increased product costs, lower margin on Fall merchandise, higher inventory write-downs). There are so many things that could be used as an excuse for a quarter miss, they are protected on every side from shareholders saying: you did not tell us.

 

Nonetheless, I think that they could still show growth for a while since they are adding more stores in the U.S. and there is quite a cult around it. But, they are not growing fast enough to justify the multiple and the merchandise is simply too expensive to get to the number of stores required (niche player). You don't expand in Australia when you have hardly scratched the surface in the U.S., something does not add up.

 

Cardboard