Hot Stock:

Rapid growth that won't soon stall


Depending on who you follow on Twitter and Facebook, you may have noticed an inordinate number of messages. The popular software company is in the midst of its annual Dreamforce conference, a huge event that highlights new cloud-based technologies and the company’s own products.

What may have got lost in all the conference updates, though, is Salesforce’s (NYSE: CRM) quarterly results. On Monday, the company, which specializes in customer relationship management applications, announced that third quarter revenue rose to $1.08 billion, a 36% year-over-year gain. It earned 9¢ a share, which was in line with analyst estimates.

The company also said that fourth quarter revenues will hit $1.12 billion, while 2014 fiscal sales will reach about $4.06 billion. It’s been a remarkable run for the company—in just four years it has quadruped its top-line sales, while shares are trading at a record high of about $53.

Analysts don’t see that rapid growth stalling anytime soon. After its earnings announcement a number of companies, including RBC Capital Markets, Stifel and Needham & Co., increased their 12-month price targets.

UBS Investment Research, which upped its price target by a dollar, was pleased with the results. In a report dated Nov. 18, analyst Brent Thrill said that its positive numbers were driven by its core CRM products, while its June 2013 purchase of ExactTarget, a cloud-based digital marketing program, is already paying off.

Salesforce said that ExactTarget will bring in between $140 million to $180 million in revenues during the fourth quarter, which is higher than what some analysts have predicted.

The company isn’t cheap. Its price-to-earnings valuation is at a record high at 118 times earnings, while its enterprise value-to-EBITDA ratio is 39.7, both well above the peer average. Yet Thrill says that Salesforce “remains our best large cap growth idea and a core holding for cloud software.”

If it can continue to grow its CRM revenues and take in more money from its acquisitions then the stock’s price will climb. UBS has a $66 price target on the stock, while a number of other analysts have targets between $65 and $70.