Is This Tech Stock Flashing the Hottest Chart on the Market Right Now?
Salesforce.com—Best of Breed Pure Cloud Play
The cloud computing market is highly competitive but, if you are looking for a pure play on cloud with terrific prospects, take a look at salesforce.com, inc. (NYSE:CRM).
The developer of enterprise cloud computing solutions focusing on the area of customer relationship management lost in its battle against Microsoft Corporation (NASDAQ:MSFT) to acquire LinkedIn Corp (NYSE:LNKD) in 2016.
At first, it was deemed a setback for salesforce.com. But the company has been able to deliver excellent results and avoid the massive debt load that it would have incurred to absorb the $25.0 billion purchase.
Salesforce.com is likely keeping an eye on the technology space, with an acquisition sometime on the horizon. It’s not a matter of if, but when, a deal will be made. Any deal will likely be much smaller than the LinkedIn acquisition, instead focusing on the small-to-midsize market.
Over the past year, CRM stock has underperformed the S&P 500 with an 8.20% advance.
A look at the long-term chart of salesforce.com stock shows that CRM stock started its eight-year rally in the March 2009 bottom and has been following the S&P 500 higher.
Chart courtesy of StockCharts.com
The weekly chart for CRM stock going back to 2015 displays several key breakouts at $75.00 and $82.50 to the current level. The record move was supported by a strong relative strength indicator (RSI) and a bullish moving average convergence/divergence (MACD) indicator.
Chart courtesy of StockCharts.com
Fundamentals Point to More Upside for CRM Stock
Salesforce.com has beaten the consensus earnings per share (EPS) in four consecutive quarters and 10 of the last 13 quarters.
The 2017 first-quarter results were stellar, driven by better-than-expected deferred revenue growth of 26%, which was above the top line growth and Wall Street.
Better yet, salesforce.com offered up a strong revenue outlook for 2017. The strong guidance suggests that the company is holding its own in the enterprise cloud space against rivals Microsoft and Oracle Corporation (NYSE:ORCL).
Revenues have consistently risen and the consensus calls for impressive growth of 21.40% and 19.40%, respectively, for 2017 and 2018. (Source: “Salesforce.com, inc. (CRM),” Yahoo! Finance, last accessed May 19, 2017.)
What impresses me is the expected revenue growth rate, which is high for a company the size of salesforce.com. The company also swung to profitability in 2016, with the growth estimated to follow revenues higher.
For traders, the current breakout is a bullish technical sign.
For traders, the current breakout is a bullish technical sign, but some may want to manage the risk just in case CRM stock retrenches back to the $82.50 level.
Option traders can play CRM stock via the use of calls and call spreads for a bullish trade or sell put options to establish a lower entry price while generating premium.
For example, if you believed salesforce.com stock was heading higher in the longer term, you could play the January 2019 LEAPS. The in-the-money $87.50 strike costs $13.75 in premium with a breakeven at $101.25, representing a 14.23% move from the current price.
