Inc Valuation – April 2017 $CRM

Benjamin 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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  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 stock analysis showing 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 software, delivered through the cloud, with a focus on customer relationship management (CRM). The Company focuses on cloud, mobile, social, Internet of Things (IoT) and artificial intelligence technologies. The Company’s service offerings are configured and integrated with other platforms and enterprise applications. The Company delivers its service offerings via Internet browsers and on mobile devices. Its Customer Success Platform is a portfolio of service offerings providing sales force automation, customer service and support, marketing automation, digital commerce, community management, analytics, application development, IoT integration, collaborative productivity tools and its professional cloud services. Its cloud service offerings include Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, Community Cloud, Analytics Cloud, Salesforce Quip and Salesforce Platform.

CRM Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CRM – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $58,718,203,497 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.83 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 301.10% Pass
6. Moderate PEmg Ratio PEmg < 20 210.18 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.78 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.83 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -1.59 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.40
MG Growth Estimate 15.00%
MG Value $15.27
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $5.75
MG Value based on 0% Growth $3.37
Market Implied Growth Rate 100.84%
Current Price $83.37
% of Intrinsic Value 545.91%, inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.24 in 2014 to an estimated $0.4 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 100.84% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into, inc. revealed the company was trading above its Graham Number of $17.4. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 210.18, which was above the industry average of 82.36. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.84., inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.84
Graham Number $17.40
PEmg 210.18
Current Ratio 0.83
PB Ratio 7.78
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2017
Total Current Assets $5,996,827,000
Total Current Liabilities $7,258,353,000
Long-Term Debt $2,008,391,000
Total Assets $17,584,923,000
Intangible Assets $8,518,891,000
Total Liabilities $10,084,796,000
Shares Outstanding (Diluted Average) 700,217,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.27
Jan2017 $0.26
Jan2016 -$0.07
Jan2015 -$0.42
Jan2014 -$0.39
Jan2013 -$0.48
Jan2012 -$0.02
Jan2011 $0.12
Jan2010 $0.16
Jan2009 $0.09
Jan2008 $0.04
Jan2007 $0.00
Jan2006 $0.06
Jan2005 $0.02
Jan2004 $0.01
Jan2003 -$0.09
Jan2002 -$0.34
Jan2001 -$0.60

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.40
Jan2017 -$0.10
Jan2016 -$0.28
Jan2015 -$0.33
Jan2014 -$0.24
Jan2013 -$0.11
Jan2012 $0.07
Jan2011 $0.10
Jan2010 $0.09
Jan2009 $0.05
Jan2008 $0.03
Jan2007 $0.01
Jan2006 -$0.01
Jan2005 -$0.09
Jan2004 -$0.17
Jan2003 -$0.24
Jan2002 -$0.27

Recommended Reading:

Other ModernGraham posts about the company Valuation – January 2016 Update $CRM
26 Companies in the Spotlight This Week – 12/13/14 Inc. Annual Valuation – 2014 $CRM

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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