1-Star Stocks Poised to Plunge: salesforce.com?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, customer relations management, or CRM, software specialist salesforce.com (NYS: CRM) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Salesforce's business and see what CAPS investors are saying about the stock right now.

Salesforcefacts

Headquarters (founded)San Francisco (1999)
Market Cap$14.6 billion
IndustryApplication software
Trailing-12-Month Revenue$2.09 billion
ManagementCo-Founder/Chairman/CEO Marc Benioff
CFO Graham Smith
Return on Equity (average, past 3 years)6%
Cash/Debt$646 million / $543 million
CompetitorsMicrosoft (NAS: MSFT)
Oracle (NAS: ORCL)
SAP (NYS: SAP)

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 49% of the 1,740 members who have rated Salesforce believe the stock will underperform the S&P 500 going forward. These bears include smartin619 and Brooklynvestor.

Earlier this fall, smartin619 succinctly summed up the Salesforce bear case: "Increased competition will slow growth and make the current P/E unsustainable."

In fact, Salesforce sports a particularly lofty forward P/E of 66. That represents a clear premium to rivals like Microsoft (9), Oracle (11), and SAP (18).

CAPS member Brooklynvestor expands on the underperform argument:

Company is making too many acquisitions and becoming bloated. ... The "social enterprise" is a speculation. Free and cheaper alternatives (SugarCRM and MSFT Dynamics, for example) are encroaching, creating pricing pressure. Sales commissions and stock options are eating up the company's value. Oh and the valuation is absurd. I'm loving the risk/reward proposition of shorting [Salesforce].

What do you think about Salesforce, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Want to see how well (or not so well) the stocks in this series are performing? Follow the newTrackPoisedToCAPS account.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Salesforce and Microsoft, as well as creating a bull call spread position in Microsoft. A separate service has recommended shorting Salesforce. The Fool owns shares of Oracle and Microsoft. 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 Fool's disclosure policy always gets a perfect score.

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