Salesforce.com Inc. (NYSE:CRM) provides enterprise cloud computing applications designed to deliver customer and collaboration relationship management (CRM, hence the stock’s ticker) services to businesses and industries worldwide.
“Cloud computing” refers to the use of Internet-based computing, storage and connectivity technology for a variety of different services. These services are based on a technology platform for customers and developers to build and run business applications.
Year-to-date, Salesforce’s shares are virtually unchanged after a recent rally of 13% off the October lows. Prior to this consolidation period, shares of CRM had been on an unbelievable roll, moving up nearly 600% from $23 in late 2008 to $160 in July of this year.
While cloud computing is certainly the wave of the future, paying over nine times sales for a $17 billion market cap company seems a little difficult to swallow. With a PEG ratio of over 4 and a forward P/E of over 70, CRM shares are priced for extraordinary growth prospects, to say the least.
Last quarter, however, Salesforce offered discounted pricing incentives for the first time in company history to attract customers. To us, this is a red flag that growth is slowing and that further growth will be at the expense of margins.
Given the extreme valuations in CRM shares, we look for Salesforce to head back to the $80 level by March 2012 expiration.
Based on CRM’s current market price of $131.33 and using a target price of $80, a target date of March 16, 2012, and $1,000 of investment capital, this is an excellent candidate for making some short-term options gains.
To play this with options, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature. Input the ticker, target price and date, and investment amount, and you’ll see several ways to trade that include buying a March put spread, buying a March put, or selling the stock. Best of all, you can see a potential profit-and-loss outline for each strategy.
Create your free login, and get access to these CRM option trading strategies by visiting the TradeBuilder here.
