One Big Fat Insider Sale at Salesforce.com
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Craig Ramsey, long-time director at Salesforce.com (NYSE: CRM), recently sold off nearly 25% of his shares per a Form 4 filing earlier this week. The filing showed that Ramsey sold off over 74,000 shares in the range of $155-$160 a piece. Ramsey netted around $11.7 million on the sales and now owns 236,000 shares.
We track insider transactions because we believe that no one knows a company better than the people who work there. It has been shown that insiders tend to outperform the market by as much as 7% annually (read more about how this strategy can boost your returns). The insider sentiment for Salesforce has been bearish of late; in looking over our database of insider purchases and sales, we find that a number of other insiders have also been dumping shares of the social enterprise company. The question for investors becomes whether there is a fundamental issue with the company or whether insiders are simply looking to lock in profits given the tech company is up 50% year to date.
Despite the insider sales, it appears that top hedge funds are finding value in Salesforce. Salesforce saw billionaire investor and manager of Citadel Investment Group Ken Fisher up his shares owned by over 750% during 3Q (check out Ken Fisher's newest stock picks). Salesforce is a leading customer relationship management software provider that currently trades at a forward P/E of 80x, well above other application software peers, such as Citrix (33x) and Compuware (27x). We do not believe this necessarily makes Salesforce a poor investment. The long-term growth prospects remain strong for the tech company (expected to grow five-year earnings at over 25% annually) on the back of a rise in corporate spending for application software.
The estimates for operating loss per share are expected to narrow from $0.30 in fiscal year 2013 to $0.08 in 2014, and revenues for 2013 are also expected to be up nicely, with an expected growth of 34%. The CRM company also saw a recent upgrade at Piper Jaffray on signs that company momentum has been outpacing the slower IT spending.
Other big name software as a service tech companies include Oracle (NYSE: ORCL), BMC Software (NASDAQ: BMC), Adobe Systems (NASDAQ: ADBE) and Intuit (NASDAQ: INTU). Oracle has a vast service offering that is expected to help boost revenues 3% in 2013, mainly driven by new software licenses. Oracle also has vast synergistic opportunities for offering hardware related to its acquisition of Sun Microsystems. This tech giant has been looking for renewed ways of generating growth, and this includes robust acquisition activity in the cloud computing space. Oracle was one of Seth Klarman's value picks in 3Q; Klarman is the author of Margin of Safety and manager of one of the largest hedge funds, Baupost Group (check out all of Klarman's value plays).
BMC is expected to see more robust revenue growth than Oracle, expected to be up 4% in 2013. This will be driven by the software company's increased interest in cloud computing. BMC trades a bit above the larger, more stable tech companies at 20x earnings, but its 10x forward P/E makes it a very attractive opportunity. Billionaire Paul Singer of Elliott Management is a big fan of BMC, having over 15% of his fund's 13F invested in the software company during 3Q.
Abode is another tech giant, much like Oracle, seeking a new way to drive growth. Although some of its 5% expected revenue growth in 2013 will come from current clients migrating to new versions of products, the majority of growth should be fueled by acquisitions. Adobe trades well north of its other large tech peers at 24x earnings, but investors still might be overlooking next year's bottom line as the company only trades at 14x forward EPS.
Intuit is expected to have some of the more robust revenue growth for 2013 at 9%, mainly driven by its small business segment, which makes up 40% of revenues. Intuit is the market leader for small business services; it acquired Demandforce earlier this year, which will further broaden its footprint to offer its clients services for client retention.
We believe Salesforce is a market leader that has been making aggressive acquisitions to fuel its future growth. There is still value to be found in Salesforce given the relative infancy of the SaaS market and the gradual shift in appreciation for customer relationships.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of BMC Software, Salesforce.com, and Oracle. Motley Fool newsletter services recommend Adobe Systems, Salesforce.com, and Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!