A bullish force awakens
03/02/18

If you don’t know what the acronym CRM stands for, you’re probably not working in sales. It’s Customer Relationship Management, which has become a hot tech area as businesses increasingly turn to third-party, cloud-based software platforms that help them use the latest data-crunching tools and techniques to better understand and expand their client bases. (Go talk to Steve in sales; he’ll tell you all about it.)

One of these cloud-software providers is Salesforce.com (CRM—yes, that’s its ticker), which, after first trading above $100/share last October, pushed to a record high above $114 in late January. Yesterday CRM hit a new all-time high above $122 after releasing earnings on Wednesday afternoon, in the process wiping out (and then some) its February correction in a little more than a week. The stock jumped more than 5% early yesterday before settling for a more “modest” 2%-plus gain later in the trading session, despite a broad market selloff.

Salesforce.com (CRM), 10/4/17–3/1/18

Source: OptionsHouse

At first glance CRM’s solid Q4 headline numbers might not look particularly stunning—a one-cent ($0.35 vs. $0.34) earnings beat and 14% revenue beat ($2.85 billion vs. $2.81 billion)—but the Street may be considering other, less-visible factors in bidding up the stock so sharply.

One of those factors is billings (deferred revenue received in advance for subscriptions), which CRM knocked out of the park with a 28% increase (to $5.6 billion)—far in excess of the firm’s previous guidance and analyst estimates for a 17% increase. The company also excelled in growing its bookings (unbilled sales), which one analyst described as the “most important indication of business strength.”1 In short, the cash register has been ringing.

Analysts were also cheered by Saleforce.com’s bullish forward guidance—earnings of 43-44 cents/share on revenues of $2.925-2.935 billion, and a $150 million revenue increase for the 2019 fiscal year.2 The company has received several analyst upgrades recently, with an average price target of $125.50 and a high target of $135.3 (With less than two hours left in yesterday’s session, the stock was trading around $119.)

When a stock makes a big jump like the one CRM made, many traders may look for a more opportune point to enter. Experienced traders will sometimes look for a pullback to recent technical levels (e.g., the general area of the January and February swing highs), while also keeping tabs on which way the broader market is leaning.

Market mover update: Luxury homebuilder Toll Brothers (TOL), which released is Q4 numbers on Tuesday (beating earnings and meeting revenue estimates), has more or less followed the script outlined in “Housing stocks in market spotlight”—opening strongly on earnings day but selling off into the close and, as of yesterday, declining two more days.

Toll Brothers (TOL) 10/24/17–3/1/18

Source: OptionsHouse (data)

It will be interesting to see if it continues to do so. The move has taken prices to a support zone defined by the November and February lows. The stock’s future path will likely be tied to the health of the housing market (numbers released this week have been a mixed bag), but if prices hold this support zone, it could tie into the larger pattern of TOL ultimately rebounding after an earnings beat.

 

Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.


1 Investor’s Business Daily. Salesforce Jumps As Analysts Watch Other Metrics Besides Earnings. 3/1/18.

2 CNBC.com. Salesforce beats, stock up slightly. 2/28/18.

3 Yahoo Finance. Salesforce.com, Analyst Price Targets. 3/1/18.