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December 8, 2010
Edited: December 8, 2010
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CRM closed Wednesday at 150.58.
CRM has a P/E of 240. Let me repeat that. CRM has a P/E of 240 and a forward P/E of over 90.
It is very common for an analyst to downgrade a high growth momentum stock due to valuation. If the analyst is correct, the analyst is a star. If the analyst is wrong, it will be forgotten in a few days.
The main criteria the analyst looks for valuation is the P/E. Oh there are many other factors but the key one usually indicated is P/E. The tip off is that the analyst will hedge his bet by saying something good about the company in addition to the negative valuation call. However wall street only sees a downgrade for valuation call
On Sept 14, 2010, Pipper Jeffery said this about CRM, priced then at 118 with a target price of 115.
"Piper Jaffray downgrades salesforce.com (NYSE: CRM) from Overweight to Neutral.
Piper analyst says, "Shares have appreciated 440% in the past 22 months, versus 39% for the S&P 500, and we believe they are now fairly valued "
Valuation spread between cloud-linked and other tech stocks has “ballooned".
"Growth rates for the current cycle are peaking in the second half, and will likely decelerate in the following 3-6 months"
Interestingly, Piper jaffrey went on to say "
We believe the company is well-positioned for continued stellar growth,"
The result, CRM was down 2 points that day to 116. However 4 session days later, CRM closed at 123.
CRM closed today at 150.58.
There are a number of strong growth high momentum stocks now getting downgraded for valuation only purposes. I hope you see the way to make money on these types of plays.
Footnote: A month later, Piper flipped and make an upgrade call on CRM.
