Too Hot to Be Bought
Even great companies can be too expensive, Cramer said on Wednesday’s Mad Money. That’s the case with Salesforce.com , the leader in the growing software-as-a-service industry but a stock possibly too hot for its own good.
In a perfect example of just how tough this market is to gauge, CRM was simultaneously downgraded and upgraded by an analyst at Goldman Sachs and one at UBS this week. Normally, when analysts disagree, it’s about a fundamental issue with the company. Not so with CRM. Both analysts agreed that it is the best-run business in its industry with the best management. They agree that the quarter will be good, that the recurring revenue is fabulous and that the industry is the wave of the future. Then why the polar opposite ratings?
It came down to risk/reward, Cramer said. The Goldman analyst said the hype surrounding this stock will be its downfall, and the Mad Money host agrees.
The positive buzz surrounding CRM is effectively priced into the stock, he said. Because it’s so expensive, it is priced for flawless execution – and this is no time to expect perfection. Cramer thinks CRM could easily have 10 points of upside left – but also 30 points on the downside. That’s awful risk/reward and why he urged no Homegamer to buy this stock no matter how tempting the business looks.
So if CRM stumbles even the slightest, Cramer thinks the stock could crater. And a stumble could happen, even if it is the best name in the software-as-a-service space. With NetSuite now public, a slew of new IPOs ready to sop up demand, and Oracle and Microsoft expected to pour money into this niche, CRM looks to have some serious competition ahead of it. That could be its downfall, according to Cramer.
The bottom line is that even though Salesforce.com is a terrific business, as far is Cramer is concerned, the stock is saddled with bad risk/reward that is more likely to hurt investors than help.
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