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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Salesforce (NYSE:CRM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Salesforce with the means to add long-term value to shareholders.
Salesforce's Improving Profits
Salesforce has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Salesforce's EPS soared from US$4.25 to US$6.45, over the last year. That's a commendable gain of 52%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The music to the ears of Salesforce shareholders is that EBIT margins have grown from 17% to 20% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Check out our latest analysis for Salesforce
Fortunately, we've got access to analyst forecasts of Salesforce's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Salesforce Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$267b company like Salesforce. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$6.7b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Does Salesforce Deserve A Spot On Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Salesforce's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Now, you could try to make up your mind on Salesforce by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.