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6/15/2010
00:23 AM
Bob Evans
Bob Evans
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Global CIO: Will Salesforce.com's Soaring Stock Puncture The Cloud?

An investment manager lists 15 reasons--15!--to avoid Salesforce.com's stock. Could that sentiment spread to product purchases as well?

We're certainly not in the stock-touting business here at Global CIO but since investment analysts can have keen insights into the performance and potential of IT vendors, we pay attention to research reflecting business prospects and market dynamics versus deep financial analysis focused on stock prices.

So when one apparently rational investment manager recently posed 15 reasons for staying away from Salesforce.com's stock, I thought it merited a look to see if his issues were centered on the company's business fundamentals or on technical parsing of its share price.

And let me emphasize here that the investment manager's warnings were limited exclusively to Salesforce.com's stock, not its products. But since the two are certainly not totally disconnected, some of the concerns he cited merit a look.

Investment manager Bret Jensen issued his 15 reasons in two separate lists on SeekingAlpha.com, one published on June 4 and the second published on June 14. You can read the full lists at those links, but this column will confine itself to those warnings related to Salesforce.com's business issues rather than its stock-price valuation.

Here are five concerns voiced by Jensen that I feel are relevant to the company's ongoing performance rather than the price of its shares (presented verbatim in the order in which they appeared on the two lists):

1) "Of the 291 insider transactions in the last six months, ALL were sells representing 12% of shares held by insiders. If insiders were selling starting in the 60’s earlier in the year, do you want to be buying in the 90's?"

2) "Price action and appreciation that is being driven by the Cloud Computing story seems eerily similar to the valuations achieved during the height of the internet boom of 1999."

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3) "SAP will be launching a competing product during this summer."

4) "Since the beginning of June, insiders have sold approximately 10mm in stock in roughly 20 separate transactions. This is in addition to their large sales since the first of the year."

5) "Consensus earnings for this quarter, next quarter, this fiscal year and next fiscal year have all come down in the last ninety days."

So what do we have here that could be of concern to CIOs? Let's take a look at each and see if there's any fire underneath the smoke:

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