salesforce.com, inc. (CRM) Still Doesn’t Make Sense: Oracle Corporation (ORCL), International Business Machines Corp. (IBM)

I’ve said it before and I’ll say it again, valuation will always matter. I’ll continue to say this even though I know that people who scream that ugly “valuation” word to high-flying growth stocks are often relegated to straitjackets. Nevertheless, salesforce.com, inc. (NYSE:CRM)‘s ascent to the top of the cloud discussion doesn’t justify its gaudy stock price. It didn’t make sense three years ago and it still doesn’t make sense today.

What are we really paying for?
While this company has done a good job building itself into a leading software as a service — or SaaS — entity, salesforce.com, inc. (NYSE:CRM) has not differentiated itself from the competition — at least not in a meaningful way. And with a forward price-to-earnings ratio of 73, salesforce.com, inc. (NYSE:CRM) is trading at a valuation that is six times the expected earnings of Oracle Corporation (NASDAQ:ORCL) and nine times that of Microsoft Corporation (NASDAQ:MSFT). Forward P/E uses estimated earnings to compare relative value among companies in the same industry.

Generally, the lower the forward P/E, the more undervalued a company is believed to be. Granted, salesforce.com, inc. (NYSE:CRM) has put up impressive growth numbers. But is the premium deserved? While investors are still pouring their hard-earned cash into this stock, it’s going to take a painfully long time for that value to be realized. And it’s not as if salesforce.com, inc. (NYSE:CRM) has been wooing the Street of late with its performance, including a marginal beat on revenue in the recent quarter — posting sales of $835 million versus consensus of $830 million.

What’s more, the company still struggles with weak profit leverage, as evidenced by a 32 basis-point year-over-year decline in non-GAAP operating margin. Likewise, full-year operating income of $357 million was a bit soft. Granted, it is 36% higher than fiscal year 2012. But it translated to a non-GAAP operating margin of just 11.7%. By contrast Oracle Corporation (NASDAQ:ORCL) posted a full-year operating margin of almost 40% and Microsoft posted 35%.

To be fair, salesforce.com, inc. (NYSE:CRM) has not arrived at the “mature” status of either Oracle or Microsoft. The operating margin performance could be due to the aggressive growth plans, which includes acquisitions. But the company’s practice of stock-based compensation for its executives can use a reform. This practice has eaten into profitability. While it’s not unusual for growth companies to adopt this policy, investors have to wonder how long this can last, and what exactly are they paying for?