Salesforce.com, Inc. (NYSE:CRM) got a 4% boost in share price after the company released its first-quarter earnings on Tuesday. The company beat expectations as revenues of $3.01 billion were up 25% year-over-year and came in above the $2.95 billion that was expected by analysts.
A big driver behind the company’s strong growth is its subscription and support revenues, which were up 27% from last year. This is an important metric for investors since this type of revenue is recurring and makes it easy for a company likes Salesforce to build on its base and continue to grow its top line.
It also helped the share price that the company’s outlook for Q2 was also better than expectations, with the company projecting as much as $3.23 billion in sales compared to analyst expectations of $3.11 billion.
The danger for investors is that the share price trades at a big premium today, valued at nine times sales and 10 times its book value. Prior to today’s earnings, the stock was also trading at a whopping 750 times its profits. And although the improved results will help the earnings ratio, it’s still a big premium for a company that has struggled to turn much of a profit despite being able to achieve terrific sales growth.
However, investors may be willing to give the stock a pass given how well the top line has done and the potential that the company still has. Year-to-date the share price is up 25% and in the past 12 months it has risen more than 40%.
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