Inc. Annual Valuation – 2014 $CRM

207px-SFDC_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Dow Components to Research – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Inc. (CRM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance):, inc. is a provider of enterprise cloud computing and social enterprise solutions. The Company provides a customer and collaboration relationship management (CRM), applications through the Internet or cloud. Cloud computing refers to the use of Internet-based computing, storage and connectivity technology to deliver a variety of different services. The Company delivers its service through Internet browsers and mobile devices. It markets its social enterprise applications and platforms to businesses on a subscription basis, primarily through its direct sales efforts and indirectly through partners. In May 2013, Inc acquired Clipboard Inc. In July 2013,, Inc. completed its acquisition of ExactTarget Inc.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 0/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - FAIL
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Balance Sheet – October 2014

Current Assets $2,439,000,000
Current Liabilities $3,308,000,000
Total Debt $1,468,000,000
Total Assets $9,413,000,000
Intangible Assets $4,591,000,000
Total Liabilities $5,622,000,000
Outstanding Shares 629,500,000

Earnings Per Share

2015 (estimate) $0.51
2014 -$0.39
2013 -$0.48
2012 -$0.02
2011 $0.12
2010 $0.16
2009 $0.09
2008 $0.04
2007 $0.00
2006 $0.06
2005 $0.02

Earnings Per Share – ModernGraham

2015 (estimate) -$0.02
2014 -$0.24
2013 -$0.11
2012 $0.07
2011 $0.11
2010 $0.09

Dividend History does not pay a dividend.

Conclusion: does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability or growth over the last ten  years and the lack of dividends.  The Enterprising Investor is concerned by the level of debt relative to the current assets, the lack of dividends, and the lack of earnings stability or growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $0.11 in 2011 to an estimated loss of $0.02 for 2015.  This negative EPSmg does not support the current pricing, and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Inc. (CRM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Inc. (CRM) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

2 thoughts on “ Inc. Annual Valuation – 2014 $CRM

  1. ferfun says:

    Why is it that some of the MG reports include a VALUATION Table (such as ADOBE’s) whereas others like SALESFORCE do NOT have any numbers for the evaluation?

    1. Fer – When a company’s EPSmg is negative, it renders most of the information in the valuation table useless. As a result, I don’t include it to lessen confusion.

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