Salesforce.com, Inc. (CRM) Stock Is Going Nowhere. Here’s Why.

… but no bite
So the question again is “why?”

If you ask me, there’s one key problem with Salesforce, and it’s the reason the stock isn’t performing as well as you might expect a company with these kinds of numbers to its credit would perform. That reason is free cash flow — or rather, the near lack thereof.

Take a lookcat how these three companies stack up in the race to turn GAAP sales and profits into real, cold, hard cash, relative to their market caps (a concept known as free cash flow yield):

CRM Free Cash Flow Yield data by YCharts

What you see here is that of the three main companies competing in the database software sphere, salesforce.com, inc. (NYSE:CRM)is the least successful in terms of generating real cash profit from its business. When you pair that with Salesforce stock’s high valuation relative to the cash it produces — at a price-to-free cash flow ratio of 40.2, it’s the most expensive stock on the list by a factor of 2 — it’s not hard to see why investors are shunning Salesforce stock.

Foolish final point
One last observation I’d like to make, and then I’ll let you go. One way you can quickly “quality” check a company’s earnings — before you even get down to crunching free cash flow yield — is to check and see whether the company makes enough cash profit that it can write its shareholders a quarterly dividend check and be sure it won’t bounce.

Both Oracle Corporation (NASDAQ:ORCL) and SAP AG (NYSE:SAP) can write dividend checks, and in fact they do pay their shareholders a dividend — 0.7% for Oracle, and a full 1.1% for SAP. That’s something salesforce.com, inc. (NYSE:CRM) can’t claim, and it’s one final reason to stay away from Salesforce stock.

The article Salesforce Stock Is Going Nowhere. Here’s Why. originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends salesforce.com, inc. (NYSE:CRM) and owns shares of Oracle Corporation (NASDAQ:ORCL).

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